Full text of Diaries of Henry Morgenthau, Jr. : Volume 392 : Part 2

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181

April 28, 1941
11:29 a.m.

H.M.Jr:

Hello.

Operator:

Mr. Acheson.

Dean

Acheson:

Hello, Henry.

H.M.Jr:

How are you?

A:

Very well. How are you?

H.M.Jr:

I'm alive.

A:

I heard you were away over the weekend.

H.M.Jr:

Oh.

A:

Are you going to be free sometime between

H.M.Jr:

Oh, that's kind of difficult. Something

I tried to get over to see you on Saturday.

now and lunch?

that you want me to know before I see the

President?
A:

Oh, no. I didn't know you were going to
see the President.

H.M.Jr:

Well, I'm lunching with him; I thought
maybe

A:

Oh, no. I just meant this morning. Your
people are coming over here at 3:00 or

4:00 on another matter this afternoon, but
I wanted to start off with a few minutes
talk with you and bring Frank Shea with

me. We have talked with our bosses and
have gotten permission to re-open this
question of doing something on the freezing.
H.M.Jr:

Uh-oh. I brought it up at Cabinet on

A:

Yes. Mr. Hull told me that you had

Friday. I did.

mentioned that and that he had said he
had asked me to do something about it.

182

-2H.M.Jr:

He said he had washed his hands of it.

A:

(Laughs). Well, I don't think that is
exactly the situation.

H.M.Jr:

That's what he said.

But I have been talking with him for
some time on the idea of letting me go
over and see if we could work out some
kind of a system for getting something

A:

done, and I don't know whether we've
gotten anywhere or not.

H.M.Jr:

Take a couple of minutes now because I

can't do it - do you want to take a

minute or two or do you have to have
Frank Shea?

A:

H.M.Jr:

A:

Oh, no, I don't have to have Frank

I can see you at 3:15. Is that too

late?

Well, I have some people coming in at
3:00 and 3:15 and then your people are
coming over at 4:00.

H.M.Jr:

On this subject?

A:

No, they were going to talk about that

H.M.Jr:

Well, you couldn't come immediately.
I mean, could you get over here at quarter
of 12:00?

A:

Absolutely. Certainly I could.

H.M.Jr:

Well, I can see you at quarter of 12:00.

Do you want anybody here from my office?

A:

May I bring Frank with me?

H.M.Jr:

Frank Shea.

A:

Yeah.

183

-3H.M.Jr:
A:

Well, now, who should I have?

Well, why don' t you let us talk with
you and then you send us anywhere you
like, but what we wanted to do was to
tell you personally what we had in mind,
rather than tell somebody who might not

tell you straight.

H.M.Jr:

Quarter of 12:00.

A:

Yeah.

H.M.Jr:
A:

O.K.

I'11 be there. Thank you.

184

April 28, 1941
3:45 p.m.

Robert

Lovett:

Bob Lovett, Mr. Secretary.

H.M.Jr:

How are you?

L:

I'm fine, sir, thank you.

H.M.Jr:

I thought that you had forgot about me.

L:

No, indeed.

H.M.Jr:

I feel a little bit hurt.

L:

I've been bothering you at frequent
intervals.

H.M.Jr:

No, you were going to let me know after

you had seen General Echols and had the

conference on the Allison engines.

Well, we're still in the process of that.

L:

We had Hunt, Evans, and Kreger down here

last week and they are sending their men

back here tomorrow night with a list of

critical priorities and we're going to try
to get Allison a few priorities on essential
tools. But the situation very briefly,

Mr. Morgenthau, is that the most that I
can see on that "E" and "F" type engine
if 400 a month in September. Now by that
time they really ought to be producing

750 to 800 I think, but they don't think
they can do it, BO that what I said to
you as far as I'm concerned still goes.
I think that's going to be the tragio
element in the air program.

H.M.Jr:

Well, now you made an offer of getting
the various planes together sometime so

I could see it.

L:

You bet.

H.M.Jr:

Well, now if next Tuesday or Wednesday -

L:

Next Tuesday or Wednesday.

I'm at your disposal.

185

-2H.M.Jr:

Yeah. I'll just knock off a day and go

L:

Well, I think we can get most of the stuff
right in here at Bolling.

H.M.Jr:

any place you suggest that we can reach

You do.

Yes, sir, and I'll call up General Emmons
and see if we can't get as many - one of
as many different types as we can right in

L:

here.

H.M.Jr:

Well, shall we say that we'll do it

Wednesday week?

L:

Wednesday the 7th.

H.M.Jr:

Yeah. That's a lucky day. I'11 knock off

L:

H.M.Jr:

on the 7th.

Well, it will take perhaps a morning.
Well, then we'll say the morning. I'm

starting out with McCloy tomorrow morning
at 8:30.

L:

Good, up to

H.M.Jr:

Where they test - you know - what do you call

L:

Yes, Aberdeen.

H.M.Jr:

Yeah.

L:

All right, sir, fine.

H.M.Jr:

Well, I'11 save the forenoon of the 7th.

L:

H.M.Jr:
L:

H.M.Jr:

it

Right. That's fine. We'll get something
over here at Bolling Field for you to see.
Right. You think that's the best place.
I think so, sir. They may want to go down
to Langley for - oh, I don't know.

Well, I can give you all day.

186

-3L:

Well, if you'll save the morning I think
that will be plenty.

H.M.Jr:

Right. Now two things, please.

L:

Yes.

H.M.Jr:

will you please mention it to Secretary

L:

All right, sir, I will.

H.M.Jr:

Stimson and also to General Marshall.

I'd like Mr. Stimson to approve it before I
do it.

H.M.Jr:

All right, sir, splendid.
Please. And if you'll mention it to General

L:

All right. I'll do that.

H.M.Jr:

Thank you.

L:

Thank you very much, sir.

L:

Marshall also

187
April 28, 1941
4:26 p.m.

H.M.Jr:

Hello.

Operator:

Mr. Alsop.

Joseph

Alsop:

Hello, Mr. Secretary.

H.M.Jr:

How are you?

A:

H.M.Jr:

Well, I'm fine, sir. How are you?
I'm fine. I'm calling you up because I
want to let you know I partially threw

down your story in my press conference.

A:

H.M.Jr:

Oh, did you, sir.
One of the boys said that they heard that
I had given up the fight.
(Laughs).

A:

H.M.Jr:

So I said, well, that was kind of an
exaggeration and I said that I never quit
fighting.

A:

(Laughs).

H.M.Jr:

Then I said over the weekend I had gotten

A:

H.M.Jr:

a little encouragement on this freezing.
Oh, had you?

They asked me all this off the record and
they said not from the State Department, and

I said yes. I just thought I'd tell it to

you so that
A:

H.M.Jr:

Well, that's awfully nice of you, sir.
I thought it might cheer you up as well as
it did me.

A:

Is the picture changing a little over there?

H.M.Jr:

Yeah.

188

-2-

I hear that there is some talk of a bill

A:

that would be introduced, a sort of trading-

with-the-enemy act.
H.M.Jr:

That I don't know, but on this whole

freezing and economic warfare, they are

loosening up a little bit. I don't think

A:

I told you I had given up the ship, did I?
Yes, you did, sir.

H.M.Jr:

I guess I was pretty low the day I saw you.

A:

(Laughs).

H.M.Jr:

I just wanted to tell you that what I did
was all kind of a joke and it was all off
the record, but today Dean Acheson walked
in and - I brought this thing up again at
Cabinet Friday and evidently it got some
results and I think your story helped too.

A:

You did really.

H.M.Jr:

Oh, I brought it up Friday then I think

your story coming on top of that, they
thought most likely I had talked to you,
and the combination did the result so I
want to thank you.

A:

Well, sir, what do you think they're going
to do?

H.M.Jr:

I don't know yet but definitely something.

A:

An adequate organization do you think?

H.M.Jr:

Well, I think a kind of a committee, you
see, going back to what we had - I don't
know whether it was three months ago or
six months ago.

A:

You mean the Treasury Executive Order.

H.M.Jr:

More or less, yes.

A:

Well, who'11 run the committee then?

H.M.Jr:

Well, it'd be Hull, Jackson and myself.

189

-3A:

Well, you'd have to have some kind of

administrative organization under that

wouldn't you?
H.M.Jr:

Well, they didn't - they came in this

morning and they said their attitude was
now for heaven sakes don't jump on us, give
us a chance. You see?

A:

Uh-huh.

H.M.Jr:

So I said that anything looks good in a

A:

Uh-huh.

H.M.Jr:

stormy sea.

But I did want to let you know that I think
your article really helped, and I appreciate
it.

A:

All right, sir. Well, thank you very much.

H.M.Jr:

Thank you. Good-bye.

190

April 28, 1941

4:35 p.m.
H.M.Jr:

Hello.

Operator:

Sullivan.

John

Sullivan:

Hello, Mr. Secretary.

H.M.Jr:

John, get from Miss Chauncey that part of
my press statement today where they crossexamined me on this question of surtaxes
affecting people who already had tax exempts,
you know.

S:

H.M.Jr:

Yes, sir.
Read that carefully, what I said, and then

talk to me about it. I won't be here in

the morning but I'11 be here tomorrow after-

noon.
S:

Then you want me to get in touch with you

H.M.Jr:

Right-o.

S:

Yes, sir.

H.M.Jr:

Thank you. Read it and have an answer ready

S:

tomorrow afternoon?

for me.

I will, sir.

H.M.Jr:

How'd things go?

S:

All right. It's pretty dull. The attendance
isn't nearly as large as they expected. The
committee is going after the witnesses and
saying you say that we should raise this

money but not this way - how should we the do

H.M.Jr:

it, and although Mr. Doughton thinks
hearings will go two weeks, I think they
might end the end of this week or the first
part of next.
I came out flat-footed against tea, coffee,
and sugar.

191

-2S:

Good for you.

H.M.Jr:

Flat. I said that I didn't want to tax the

S:

H.M.Jr:

food on a poor man's table.

That's
the stuff. Jere Cooper is quite
upset.
What's his trouble?

S:

Well, he left a memo with you.

H.M.Jr:

What?

He left a memorandum with you about an
employee, and he got a note from Norman

S:

and he was terribly upset about it, but I
can talk with you about that tomorrow.

H.M.Jr:

Well, look here. Let me get this thing

straight. From the day I was in the Conser-

vation Department, which is ten years ago,

down to this day, I will not let a politician,
Senator or Congressman dictate what I pay to

my employees.
S:

H.M.Jr:

8:

H.M.Jr:
S:

Correct.

And this boy or girl has only been here a
short time, and I said after six months
we'd take another look at it.

That's right.
Now what in the hell is the matter with that?
There isn't anything wrong with it and I
think it is exactly what you should have
done. I don't know whether Jere is feeling
well or not, but he was upset that he

hadn't heard from you and had heard from
this fellow Thompson who he didn't know.
H.M.Jr:
S:

Well, we'll put on the vaseline.
That's right.

192

-3H.M.Jr:

Remind me to do it tomorrow afternoon and

8:

I'11 call him up myself.
Yes, sir.

H.M.Jr:

Remind me and I'll call him up.

S:

Right. I hope you have an interesting
time in the morning.

S:

Shall I do it today yet?
I think it might be better, yes.

H.M.Jr:

I'll do it right away.

S:

All right, and will you let me know?

H.M.Jr:

H.M.Jr:

I'll let you read what I say, that's

S:

That's fine. Thank you sir.

H.M.Jr:

All right.

easier.

193

April 28, 1941
4:39 p.m.

H.M.Jr:

Hello.

Operator:

Congressman Cooper.

H.M.Jr:

Hello, Jere.

Jere
Cooper:

Hello, Henry. How are you?

H.M.Jr:

I'm fine. How are things going?

C:

H.M.Jr:
C:

H.M.Jr:

C:

Fine. Fine. We're getting a good start.
Any suggestions or any criticisms?

No, I don't know of a thing 80 far, Henry.
I think it is getting started off as fine
as I ever saw it.
Well, if anything comes up I wish you'd
call me.

All right. I sure will.

H.M.Jr:

Because I'm counting on you.

C:

Well, thank you so much.

H.M.Jr:
C:

All right.
All right, fine.

H.M.Jr:

Thank you.

C:

All right. You're welcome.

H.M.Jr:

Good-bye.

C:

Good-bye.

194

April 28, 1941
4:54 p.m.

H.M.Jr:

Hello.

Henry L.
Stimson:

Henry, I was exploding over a speech when

you called me before, and Schott has just
given me your message. Of course it is
agreeable; I'm glad that you're going

H.M.Jr:

S:

Well, I just wanted to know. I don't
want to do anything with the Army
Oh, no, no, no.

H.M.Jr:

......

S:

I'll turn him loose.

H.M.Jr:
S:

H.M.Jr:

unless you know in advance.

What?

I'll turn Lovett loose to help you.
Good. Well, what I'm going to try to do
is

S:

H.M.Jr:
S:

The President turned me loose the other day said I could make a speech.
Wonderful.

(Laughs). I don't know what he'll say
when I show him what I'm thinking of. But
I'm partly egged on to it by your last
memorandum that you sent me.

H.M.Jr:

Which one was that?

8:

Barth's.

H.M.Jr:

Oh, yes.

S:

H.M.Jr:
S:

No, I think it is time somebody - the real
trouble everybody is gloomy now because
they're all facing indecision.
Barth writes good stuff, doesn't he?
Yes. I'm going to speak right out.

195

-2H.M.Jr:

Fine. No, I'm going to try one day a

8:

Well, that's good. I'm trying the same

H.M.Jr:

week to get out and see something.

thing and if I had known that you wanted
to go down, when I went down last week I
would have loved to have taken you.

Well, I would have liked to have gone.
Well, just keep me in mind.

8:

All right.

H.M.Jr:

Thank you.

196
BRITISH EMBASSY,
WASHINGTON, D.C.

April 28th, 1941.
Personal and Secret.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information copies

of the two latest reports received
from London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Halifax
The Honourable

Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.

197

Telegram from London dated April 25th.
1.

Naval. Our destroyers seeking convoy reported

off the Tunisian Coast, sank Northbound Italian 3,000 ton
merchant vessel.
2.

Legation Staff from Athens were due to arrive at

Melos on 24th.
3.

Enemy aircraft attacked two East Coast convoys

night of 24th/25th. One ship only damaged.
4.

Military. Greece. Front remains quiet apart

from demonstrations by enemy armoured fighting vehicles.

There may be indications that the Germans are preparing gun

emplacements on the north shore of Maliakos Gulf. On April
23rd there was continuous bombarding of roads particularly
from Eleusis to Corinth and to Thebes. Small energy forces
reported in Prevesa.
5.

Royal Air Force. 24th. Enemy tanker, about 2,000

tone, destroyed off Stavanger and small vessel off Brest.
Our fighters shot down two enemy aircraft and damaged a third.
One of our fighters missing.

Night of 24th/25th. 68 bombers sent to Kiel, 22
to Havre, and a few to Ostend, Ijmuiden and Wilhelmshaven.

121 aircraft in all went out. one missing.
6.
Libya. 23rd. Our fighters engaged large force of
enemy aircraft over Tobruk and destroyed eight. Three of
ours damaged, two pilots safe.
7.

German Air Force. Night of 24th/25th. About 70

enemy aircraft over land and 60 others mine laying, or
against shipping.

198

Telegram from London dated April 26th.

1.

Naval. Two attacks by 28 and 40 aircraft on Malta

April 25th. Mines laid, harbour objectives bombed, damage
not yet known. One aircraft shot down, one damaged.
2.

Military. Libya. April 24th. Enemy infantry

with artillery support attached southwest of Perimeter.
Attack was broken up 400 yards from our foremost defended

localities, many enemy killed.
3.

Occupied France. A1F reconniassance April 22nd

showed no unusual movements on roads, railways, but large number

of dumps. This with other information suggests that preparetions for movement into Spain probably far advanced. Believed
that 7 German divisions including one motorised area Bordeaux-

Hendaye, these could be quickly reinforced.
Yugoalavia. Now reported Yugoelave sank ships at
4.
4 points near the Iron Gates causing successful blockage.

Attempt to blook less important place partially successful.
Railway bridge over the river believed demolished causing
obstruction.
5.

wounded.

Bulgaria. Sofia reported crowded with German
Hospitals overflowing, private houses commandeered.

Royal Air Force. April 25th. Fighters shot down
German bomber off Brighton. Night of April 25th/26th. 66
6.

bombers sent to Kiel and small numbers to Bremerhaven, Rotter-

dam, Berlin, Ijmuiden and Brest. One Wellington missing.

German Air Force, Very little day activity April
25th. Night of April 25th/26th. 35 aircraft operating chiefly

7.

over northeast England, 35 more probably mining, 5 others
engaged against shipping.
8.

Greece. One Hurricane shot down April 23rd during

attacks on landing ground at Argos (Morea), 13 Hurricanes
were/

199

-2-

were destroyed on the ground. April 24th, German dive
bombers attacked Suda Bay damaging buildings.

Home Security. Night of April 25th/26th. Attack
lasting 1 3/4 hours on Tyneside. Damage so far reported

9.

not serious, casualties light.

200
EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL

FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN
AS SHOWN BY DEPARTURE PERMITS GRANTED

Week ended April 26, 1941
:

RUSSIA

SPAIN

:

:

JAPAN

GREAT BRITAIN

:

:

:
:

PROLEUM PRODUCTS

Fuel and Gas 011 (including
Diesel 011)

9,900 Bbls. 62,000 Bbls. 39,000 Bbls. 363,010 Bble.

Crude

Blended or California
High Octane Crude*
All Other Crude

--

--

--

--

--

--

--

--

--

--

--

--

--

--

--

--

144,250 Bbls.
82,343 Bbls.

Gasoline -

Gasoline A**
Gasoline B*

All Other Gasoline

--

30,750 Bbls.

104,995 Bbls.
105,000 Bbls.
--

bricating Oil -

Aviation Lubricating 011
All Other Lubricating 011

53,801 Bbls.

--

1,360 Bbls.

33,172 Bbls.
297,021 Bbls.

-

--

--

-

-

--

-

--

Number 1 Heavy Melting Scrap

--

--

--

21,439 Tons

All Other Scrap

--

--

-

9.705 Tons

!etraethyl Lead ***

Boosters", such as IsoOctane, Iso-Hexane, or
Iso-Pentane
RAP IRON AND SCRAP STEEL

fice of the Secretary of the Treasury, Division of Research and Statistics.
April 28, 1941.
area: Office of Merchant Ship Control, Treasury Department.

Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon
mixture - President's regulations of July 26, 1940.
Aviation Gasoline.

As defined in the President's regulations of July 26, 1940.

Delivered to Treasury by Mr. Nicholson

201
SHANGHAI

Qaahres

April 28 1941
From Jacobson

For Nicholson

Re North China financial situation

Federal Reserve Bank notes continue to be legal tender Stop Notes Chung-

king Government banks still serve as medium between FRB and foreign cur-

rency Stop As FRB notes are considered at par with Japanese you Federal
Reserve Bank and its agents buy US dollars at twenty three five eighths

and sell at twenty three seven sixteenths Stop These are the only official rates of exchange but actual business is done at different rates depending on market fluctuations Stop Since last November authorities have
abolished official link rate of thirteen seven sixteenths for U S dollars
Stop Before last Nov importers and exporters were obliged to declare
rates of exchange not lower than thirteen seven eighths but owing to less
imports than exports merchants could find no way to meet above official
link rate and had to declare false values before authorities so as to meet
requirements Stop With abolition of official link rate merchants can now
declare true link rate at which they buy or sell U : dollars this has
therefore helped merchants considerably in their business transactions
Stop All merchandise exported from North China continues to be under com-

plete control of authorities Stop One is allowed to export as long as
declared value is up to satisfaction of authorities and as long as Federal

Reserve Bank can buy ten percent of export value in foreign currency at

rate of twenty three five eighths for U S dollars Stop Such articles as
furs and bristles can be exported only by military authorities and no one

else can export this type merchandise even though willing to meet above

mentioned requirements Stop Authorities have put in strict control over

import trade and certain merchandise cannot be imported into North China
without first obtaining an import permit from Federal Reserve Bank other-

wise customs authorities will not release goods Stop Any firm or individual applying for such import permit must have record showing that they
had imported similar goods before Stop Since introductions of import
control last July there had been great decrease in import trade in North

China Stop Articles of luxury are strictly prohibited even daily necessities are allowed to be imported only in limited volume Stop Special
privileges have been given by authorities for foodstuffs imports of rice
flour corn maise etc Stop Federal Reserve Bank will sell to importers

of these commodities ten percent of import value in foreign currency at
rate of twenty three seven eighths which the bank gets from exporters

therefore bank does not get any thing from export currency provided obtained such at

currency is used against import foodstuff thus food can be Chinese

cheaper prices than other imported items Stop Present value Chinese Nation-

National yuan has declined fifty one cents FRB that is every of Chinese
al dollar is equal five one cents FRB Reasons for this decline circulation of
National currency in North China are as follows (1) Wider

-2-

202

FRB notes as these notes are considered only legal tender and all merchandise must be purchased with FRB (2) Less demand for Chinese National
Currency as Chinese currency can be used only as medium between FRB

foreign currency (3) Strict import control on account this strict control and
exports have been much greater than imports consequently FRB has increased

considerably during past for months (4) Heavy remittances to Shanghai
Stop When value FRB notes increased many persons remitted their savings
Shanghai with view taking advantage of a premium however value of FRB

notes continued to advance and thus no one can afford to have his

returned to Tientain for in so doing there would be a loss instead money of a

premium and as a result most persons have very little cash on hand and

money market has been exceedingly tight (5) Drug traffic there has

been great quantity opium exported from North China to Shanghai and other
places in China estimated value this opium is twenty million monthly Stop
This opium has to be paid for in FRB notes so demand for FRB notes has
increased Stop On other hand the money cannot be brought back to import

on account of the control Stop North China financial situation considered
very precarious by banking circles and may take turn for worse at any time
Stop Learned from reliable source that FRB note issue is about seven
hundred fifty million Stop Accumulated foreign currencies obtained from
ten percent of exports &mount to about U S dollars two million three
hundred thousand and pounds sterling about one hundred thousand.

ytbj:4-29-41

203
C

0

P

Y

CONFIDENTIAL

PARAPHRASE
telegram (no. 487) of April 28, 1941 from the
American Consul General at Shanghai reads substantially
as follows:
The explanation given by Chinese bankers of the

fall in exchange rates for Chinese currency on April 28
in spite of the conclusion of the stabilization agreements
is that several days ago the favorable aspects were well
discounted. Some of the Chinese bankers say that the recent turn of events in the Balkans which have an unfavorable
reaction upon Chinese currency have a depressing effect upon

the feeling as to the general outlook for the democracies.
There are other factors which contribute to the adverse

market sentiment in Shanghai. These factors are: the be-

lief that the stabilization fund will not be used in such a
way as to bring rates above present levels; the greater

uncertainties in the situation in the Far East resulting
from the neutrality agreement between Japan and the Soviet
Union; and the strengthening Japanese financial and economic

controls in Shanghai and the other occupied regions of
China.

Copy:bj:5-1-41

204
0

0

P

Y

DEPARTMENT OF STATE

Washington

In reply refer to
EA 860H.51/1031/1032

April 28, 1941

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
paraphrases of telegram no. 362 dated April 25 and
telegram no. 367 dated April 27, 1941 from the American
Embassy at Rio de Janeiro, regarding Yugoslav funds

deposited in the Bank of Brazil.

Enclosures:

Paraphrases of
nos. 362 and 367,

from Rio de Janeiro.

205

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro.

DATE: April 27. 1941, 9 a.m.
NO. : 367.
Reference is made to this Embassy's telegram of

the 25th, inst., (5 p.m.,), no. 362.
It is now suggested by Nabuco that the Yugoslav

Government set up some sort of a directorate of the
bank whenever (wherever 1) it is established.
CAFFERY

EA:FL:MSG

EH:COPY

4-28-41

206

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro, Brazil

DATE: April 25, 1941, 5 p.m.
NO. : 362

The following telegram is confidential:
Reference is made to telegram of April 24, 7 p.m.,
no. 351 from the Embassy.

I am told by Nabuco that it is the contention of the
Bank of Brazil that the National Bank of Yugoslavia made

the Yugoslav deposit. Also, the Bank of Brazil believes
that if any requests are made whereby the Yugoslav deposit
would be affected, such request should be made, in some
manner, in the name of the Bank of Yugoslavia. The Bank

of Brazil, in any event, will not permit the money to
get into the hands of anyone else.
I was asked by Nabuco where the Yugoslav Government

is functioning. He does not have any definite suggestions
to offer concerning the Yugoslav deposit.
CAFFERY.

EA:LWW

ehicopy
4-28-41

207
April 28, 1941
9:25 a.m.

Sen. Joe
O'Mahoney:

Hello, Henry.

H.M.Jr:

Hello, Joe. How are you?

Well, I'm pretty good considering all
the trials and tribulations we're going

0:

through.

H.M.Jr:

That's right.
It's pretty tough.
That's right.

0:

Henry, I suppose you'll ask somebody to

H.M.Jr:
0:

talk with me when you're setting up this

organization in Wyoming for the bond
sales.

H.M.Jr:
0:

Surely. Surely.
of course that's going to begin pretty
soon so I'd like to be called in. I know
how important it is to have the proper
sort of an individual running it, but it
is also important to consider all the
implications.

H.M.Jr:
0:

Surely.

Some of the agencies have selected fellows
who have been against the President and

against the Democratic Party to carry on
some of this stuff and it brings bad
reactions. Have somebody talk with me,
will you?

H.M.Jr:

I'11 do that.

0:

That was a nice article about your father
in the New York Times.

H.M.Jr:

Wasn't it? Yeah, I was very much pleased.

0:

When you write him, give him my best,

will you.

208

-2H.M.Jr:

I'll do that.

0:

He was always one of my favorites at
the headquarters, you know.

H.M.Jr:

Thank you, Joe.

0:

All right, Henry.

H.M.Jr:

Good-bye.

208

-2H.M.Jr:

I'll do that.

0:

He was always one of my favorites at
the headquarters, you know.

H.M.Jr:

Thank you, Joe.

0:

All right, Henry.

H.M.Jr:

Good-bye.

209
THE

April 28, 1941
SECRETARY OFFICE OF THE OF TREASURY Minney

TO:

FROM:

Mr. Gaston
Mr. Graves

Ret'd 5/1

the

4/28

Secretary Morgenthau

I would like for somebody
to call on Senator O'Mahoney today in

response to his call to me.

(Please return this copy to Room 285.)

#

210
TREASURY DEPARTMENT
WASHINGTON

April 28, 1941.
MEMORANDUM FOR THE SECRETARY:

In accordance with your memorandum attached (and

after discussion with Mr. Gaston), I talked with
Senator O'Mahoney with reference to our plans for a
State organization in Wyoming.

I advised the Senator that we had so far set

up a tentative organization in six States; and that
we planned to proceed gradually with additional
States, our progress depending somewhat on the results

of our experimental work in the six States referred to.
I told him that we would undoubtedly soon reach
Wyoming, and that before selecting our personnel for
the Wyoming organization, I would call upon him per-

sonally to get his suggestions.
The Senator expressed himself as satisfied with
this arrangement.

GRAVES.

211
CONFIDENTIAL

MILITARY INTELLIGENCE DIVISION

TENTATIVE LESSONS BULLETIN

No. 97
G-2/2657-235

WAR DEPARTMENT

Washington, April 28, 1941

NOTICE

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative
and in no sense mature studies.
This document is being given an approved distribution,

and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction,
see Letter TAG 350.05 (9-19-40) M-B-M.

PHYSICAL TRAINING FOR GERMAN FRONT LINE TROOPS

SOURCE

This bulletin is based upon information from a German
semi-official publication released before September, 1940.

CONTENTS

1.

GENERAL PRINCIPLES

2. ORGANIZATION
3.

GROUND AND EQUIPMENT

4. DRESS
5. FORMS

CONFIDENTIAL

-1-

212
CONFIDENTIAL

PHYSICAL TRAINING FOR GERMAN FRONT LINE TROOPS
GENERAL PRINCIPLES

1.

Physical training for front line troops should be recreational
insofar as possible, for exercises unwillingly carried out fail in their
object. Over strain must be avoided. The physical training officer must,
however, choose games and exercises which are both recreational and health

promoting.

If a unit is withdrawn from the line for some time, physical
training should at first be mainly recreational but gradually graded up
to serious work. Even in this process the recreational aspect may be
preserved by means of competitions and displays.
2. ORGANIZATION

The aim of keeping all men continuously employed is best
achieved by holding groups down to 20 or 25 men. As far as possible,
games and exercises must take the form of competitions, and in particular
competitions between teams representing existing groups. For example,
gunners may be pitted against drivers. Finals should be made festive
occasions if possible.
Two hours, including time consumed in going to and from the
sports ground, dressing, and undressing, is the shortest period which

can be usefully devoted to physical training. Attention should be paid
to hygiene - cooling off after strenuous effort, washing, pedicure, and
the like. The disinclination for everything connected with physical
training, particularly evident in older soldiers, will soon be overcome
if senior officers take part in exercises.
3.

GROUND AND EQUIPMENT

Dry meadow land without shell holes is best for physical training, but almost any ground will serve. Simple gymnastic equipment can
often be improvised without difficulty. Footballs, hand balls, and punch
balls are easily obtainable and can be carried with the unit.
4. DRESS

The usual dress for sport is a cotton shirt, shorts, and gym
shoes. In warm weather physical training can be given to troops barefooted and in swimming suits.

CONFIDENTIAL

-2-

213
CONFIDENTIAL

5.

FORMS

a.

Free Movements

Free movements can be easily carried out almost anywhere.

Simple exercises which can be grasped without difficulty should be chosen.
Suitably filled sandbags can be used instead of medicine balls.
b. Games
Many games can be played even in gun positions and wagon

lines, and these are particularly suitable for older men - for example,
tug of war, wrestling and throwing, sack races with feet bound together
if sacks are not available, chariot races, tilting, and weight throwing

with improvised weights.

Several army blankets laid on top of each other will provide an excellent mat for wrestling. High and broad jumping can be
practiced wherever it is possible to dig a pit.
C. Running
(1) Sprint-races up to 100-200 yards.
(2) Obstacle races, either over natural obstacles or
obstacles improvised from vehicles, etc.
(3) Cross-country runs. These are often unpopular with
the men, but they are particularly valuable for developing endurance.
Only younger men should be sent on cross-country runs, and the distances
at first should be short with frequent intervals during which men are
allowed to walk,
(4) Runs through woods are the best form of cross-country
running, and older men can also take part in these. Men are allowed to

walk and run alternately and to walk up all hills.
(5) Hare and hounds.

(6) Relay races.

d. Gynnastic Exercises
Wherever equipment is available or can be improvised,
gymnastic exercises are valuable.

CONFIDENTIAL

-3-

214
CONFIDENTIAL

e. Weight Lifting
Weights may be improvised.

f. Bathing and Swimming
In warm weather no opportunity should be missed for
bathing and swimming. Wherever possible, a stream should be dammed and

kept free of slime by means of gratings. Every opportunity should also
be taken for sun-bathing.

g. Excursions
Excursions on foot to places of interest in the neighborhood appeal to the older men and reservists.

CONFIDENTIAL

CONFIDENTIAL

215

Persphrees of Code Cablegree
Received as the War Department

as 9:03, April 26, 1941.

Losion, filed 14:11, April 26, 1941.

I. Daily Cable.
1.

British Air Activity over the Continent.

2.

Daylight, April 27.

British air foress been shipping targets off the coast of
Trease and industries in Germany. Missions were performed by fighter patrels
Motheriands and Occupied France.
2.

Hight of April 26-27.
Benburg was attached by 50 British bombers and 15 additional

operated against Le Navre, Brest, and Bales. A small number of planes

the assquite first base at Ijusides.
2.

Serves Air Activities ever Britain.

a.

Right of April 27-m
Gerona air operations against Great Britain were is since

proportions with Partemouth as the chief target. A few were active over Deven
and Commell.

. Daylight, April 27.
Common operations were - a small seals with a small number
of please over Govertay and the Wash.
2.

Right, April 26-27.
One Insured thirty German please were employed in as attack

over Liverpool.

CONFIDENTIAL

CONFIDENTIAL

216

3. Ate Lecono. States.
2. British. Highe of April 06-87.
Two please were shot down in the course of saids - constal
bases.

. - Eight of April SY-SS.
British sight fighters what down - plano and damaged another.
Daylight, Agril 27.
The please were destruyed in vaids over Regions.
4.

British Air Activity made Bash States.
Boobing missions were performed by British planos based in

Sayet - Dangess and fighter equitrees mehine - gaseline stations is
the visinity of Baree.
5.

- Air Aestrite made Test Theater.
German boobing operations against parts and chipping in

Southern Greese continued heavy.

following is - British Intelligence information an to

the a of Amil

1. Mim
- air-base troops and aircraft have been deserved.
There are - indications that they may be employed to counter the Free
French is Syria.
2.

-

Italian The Africa.

Bessye was occupied w British trouge April 27.

3.

a the night of April 06-87 a force of apprexiancely -

briggto of Australian treege was successfully amounted.

-

CONFIDENTIAL

CONFIDENTIAL

217

4. Authorision I - than - / will be - a

taste employing - wage.

5. 1

- - - I I / - / in

the Sollam - - sollaning the - - - from Soliam, as
(estimated as two I - vehicles with mulling) slog the

- from the - region - mother (also with writteny) be
the year of Balage from ssas 6.

Share were no I reported in Atlantic - in the

work beginning Agest 27. All I as - we I - 7. the 8,000 tea writeer - was / w targetess - be

in April so.

a. Reports dated Agent as from the / business state

that there is no - - of woods in that area but a large not
of supply Sange have been - coveral - divisions instating

- montant division, - I to be in the - area.
IN
Distributions

of -

State Department

Community of /
Refer
of
Assistants of Statt, as
- Please
office of Reval Intelligence
Ats George
e-3

CONFIDENTIAL

218

RESTRICTED

Paraphrase of Code Ballogram
Received at the Year Department

at 1:53, April 28, 2041.

Choughing, filed April 28, 1941.
Small stocks of rice for sale as prices about $80.00

per unit of 56 lbs. above price before last flurry, and rice
situation has eased. For present anticipate no further serious
trouble.
BARREST

Distributions
Secretary of Var
State Department

>Secretary of Treasury

Under of Mar
Assistant Secretary Chief of Staff,

as

War Plans Division

office of Naval Intelligence

RESTRICTED

CONFIDENTIAL

219

Persphanes of Code Cablegree
Received as the War Department

as 22:45, April 28, 1941.

Ankers, filed April 27.
Please note eabile 111 from Rebeasy. The request there

referred to will, in my opinion, got a negative answer.
Five ships under the Genean fing, which since 1939 have

been in the Black Sea, have within the last five days passed

through the Dardanelles in order to unload munitions at parts in
Greese. According to reports, the British sank one in the Aegann.
The Germans have taken the island of Lannon. The Germans have the

airfield with same improvements recently installed by the British.
KLUSS

(0-2 Notes Embassy No. 111, not yet received, will be airsulated immidiately on reseipt.)

Distribution
Secretary of War
State Department

Secretary of Treasury
Under Secretary of War

Assistant Chief of staff, 0-2

War Plans Division

office of Naval Intelligente

CONFIDENTIAL

220

TREASURY DEPARTMENT

Washington

Press Service

FOR RELEASE, MORNING NEWSPAPERS,

Tuesday, April 29, 1941.

No. 24-86

4/28/41

The Secretary of the Treasury announced last evening that the

tenders for $100,000,000, or thereabouts, of 91-day Treasury bills,
to be dated April 30 and to mature July 30, 1941, which were offered
on April 25, were opened at the Federal Reserve Banks on April 28.

The details of this issue are as follows:
Total applied for - $301,690,000

Total accepted - 100,069,000
Range of accepted bids:

High - 100

Low

Average

- 99.972 Equivalent rate approximately 0.111 percent

Price - 99.976

0.097 percent

(23 percent of the amount bid for At the low price was accepted)
-000-

221
April 30, 1941
9:10 a.m.

Frank
Knox:

and they're holding
some kind of legislative hearing out
there on this matter of making the fees
for contractors doing Navy work subject
to tax and I couldn't remember just what
the
decision
to wire
him was on that thing and I have

H.M.Jr:

Well, the thing was - Stimson gave it to

somebody - what's his name, he's in the
Undersecretary 8 office - and we gave it
to Foley and they're supposed to be working
on it and have been working on it for
about two weeks and I hadn't heard anything

more about it. They were to get together
and then go and see Bob Jackson.

K:

H.M.Jr:
K:

H.M.Jr:

Who was going to get together?

Well, Judge - what's his name
Forrestal.

.....

Patterson and Foley were to have
gotten together to go to see Bob Jackson.

That was the last that I heard, but that

was over two weeks ago.
K:

Yeah.

H.M.Jr:

But let me ask Foley what has happened

K:

and I'll let you know.
All right, because they're having a

committee meeting tonight and this fellow
wants to know whether he's to appear before

the committee and oppose it, and I don't

know what to answer.
H.M.Jr:

I called your office to see whether I could

K:

give you lunch.
You did call up my office?

H.M.Jr:

Well, I asked them to ten minutes ago.

I don't know whether it got through or not.

222
2K:

H.M.Jr:
K:

Wait a minute - let me see.
I hope you can make it.

Just a second. (Pause). Yeah, I think
so. What I had planned to do - I can't
take you out with me, can I, and play

golf?
H.M.Jr:
K:

Not today, no. But I don't want to
interfere with your golf.
I guess we'd better let it go then

because if I stay down town for lunch

I get pretty late. I'11 go out and get
my lunch at the club and get in a little

golf this afternoon. I need some exercise.

H.M.Jr:

Do that.

K:

All right, Henry. Give me a rain check?

H.M.Jr:

Three of them.

K:

I love to lunch with you.

H.M.Jr:

All right.

K:

All right. Good-bye.

223
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE April 29. 1941

Miss
FOR

TO

FROM

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL
At 3 p.m. this afternoon the Secretary received Sir Edward Peacock, the
British agent charged with the disposal of direct investments in the United States.

Messrs. White and Cochran were present.

Sir Edward explained that he desired to make an informal report to the
Secretary of the progress that has been achieved since his last report made at the
Secretary's luncheon on April 9. Sir Edward said that he had two projects which
he hoped shortly to consummate. One of these was the Linen Thread Company, which
had been pending for some time, but which has not been completed since the market

went down. It had been anticipated that the Hutton firm would handle this business,
and Mr. Iglehard had been the representative thereof who had discussed the proposal
with Peacock. The second concern is that of Keaseby and Mattison, who are controlled by the important British asbestos firm of Turner and Newall. Both of these
propositions would be direct sales. Peacock thought that two more sales of moderate
sise concerns coming now would be a good move since he still hopes these may be put
through.

Sir Edward referred to the Viscose transaction. He said the investment bankers
are still working with their "set up" and hope to come out with the public distribution some time in May. In discussing this case, the Secretary let Sir Edward know
that when Harold Stanley and young Dillon were in the Treasury a few days ago to
put up a tax proposal, which was subsequently withdrawn. the Secretary had volunteered the personal advice that as the completion of the Viscose sale takes place
the New York distributors would do a really good deed to the benefit of the country
and to the good name of the New York investment fraternity if they asked a commission
less than that stipulated in the contract. The two visitors had taken this suggestion very nicely and had told the Secretary that they would submit the whole proposition to him, once the distribution is effected, before claiming commission.
Sir Edward was very much appreciative of the Secretary's intervention, which may
conceivably save the British two or three million dollars.
Peacock then referred to the Brown and Williamson negotiation. He felt that
it had received a very good press and had been accepted favorably on all sides.
Again he thanked the Secretary for his intervention with Mr. Jesse Jones which,
Sir Edward understood, had resulted in a just amount having been loaned, which was
in fact five million dollars above that which Mr. Jones had been mentioning. The
Secretary insisted that he was anxious to help the British in every possible way
in their orderly handling of their investments.

224
2-

Sir Edward then got on the subject of the industrial market, and asked the
Secretary's opinion. A general discussion followed, in which the Secretary expressed his admiration for the manner in which Mr. Gifford has carried out his
sale of securities during this unsettled period. He did not think we could expect
any great improvement in the market while the dominant factor of the European war
hangs so darkly overhead.

Sir Edward explained to the Secretary that he is depending importantly upon
Mr. Clarence Dillon for advice in his present work. Sir Edward had operated on
the New York market thirty-five years ago, but felt that coming back now he must
have the advice of some dependable and skilled operator. In Mr. Dillon he found

an old friend. Furthermore, Mr. Dillon has definitely withdrawn from the firm of

Dillon and Read and has his own independent office. He is a good friend of the
British cause and is not interested in making any money out of the present business.
Consequently, Sir Edward has spent considerable time with Mr. Dillon, and has let
him examine several of his dossiers, and make recommendations as to the proper

method for handling the cases involved. Sir Edward continues to have the very
helpful assistance of Mr. Gifford, who now has his own work in such good shape that

it does not require all of his time. The visitor wanted the Secretary to know

that he is studying all phases of his problem and does not yet know how to deal
with British insurance companies here and some other types of investments. In
recent days he has, moreover, had cablegrams from the British Treasury asking him

to put at the bottom of his list certain comparatively small concerns operating in
this country which are specially useful in supplying Great Britain with materials
or articles in connection with the war program. Such concerns are the Pacific Molasses
Company: Norman Hoffman Bearings Company; the Baker Percins Company (which makes

wrappings): the Texas Mining and Smelting Company of Laredo (which is controlled by
the Cookson Lead and Antimony Company of Newcastle-on-Tyme, and produces antimony):

the Oldbury Chemical Company: and F. W. Burke. Most of these are medium to small
companies.

The Secretary told Sir Edward that he appreciated his coming in to make this

report and hoped that he might drop in fortnightly in the future. He said that he
did not feel like making much comment, and certainly not in a position to exert any

pressure, since he does not exactly know how Sir Frederick Phillips stands in the
way of funds. It was explained, however, that Phillips would be in to see the
Secretary tomorrow and presumably would explain his position. Peacock thought that
Phillips would not require more assistance from him in the way of proceeds from the
direct investments than he, Peacock, could deliver. He made the point, however, that
Gifford was really the important contributor from the security and investment side.

TOMP

225
April 29, 1941
3:30 p.m.

H.M.Jr:

Hello.

Operator:

H.M.Jr:

Mr. Acheson is in a meeting with Sumner
Welles and she can't get him but she can
send a note and have him call you.
What's that?

Operator:

She can send a note in and

H.M.Jr:

Yeah, send a note in.

Operator:

All right.
3:38 p.m.

Dean

Acheson:

Hello, Henry.

H.M.Jr:

Dean?

A:

Yeah.

A:

I got a call that you wanted to talk to me.
I called you this morning about the story

H.M.Jr:

Yeah.

H.M.Jr:

A:

that was in the Post of your newspaper conference yesterday. The Secretary spoke to
me about it this morning and then I got
called by the Swiss and the Swedes and
various press associations.

And I have told them that I did not know
what you had in mind, that this matter was
under constant discussion between us and we
were all going forward to do the best thing
we could always, that I didn't know of anything new in the field at all and whenever
we had an opportunity we canvassed it, and

went on with that sort of talk.

H.M.Jr:

Yeah.

226

-2A:

But it upset the Secretary quite a bit

and it has upset the Swiss and everyone,
so we're doing a little bit of general and
fancy lying around here

A:

General and fancy lying.
(Laughs). Yeah.

H.M.Jr:

Well, you're very

H.M.Jr:

A:

H.M.Jr:

of course we don't know about anything.
Well, of course, what happened, Dean, was

this. Kintner and Alsop wrote this story

which you may or may not have seen.
A:

I saw that on Sunday.

H.M.Jr:

Well, the newspaper men threw that into my

face and said had I quit fighting. So I
said, no, I hadn't and that I had gotten

some encouragement over the weekend. Then

they asked me off the record where and I
said from the State Department, and - let's
see what else there was

A:

Well, that's all there was in the story.

H.M.Jr:

Pardon me?

A:

That's all there was in the Post report
this morning.

H.M.Jr:

Well, that was accurate and then I said
that I never quit fighting and, as I say,
when they threw that in my face I had to

answer. I'm sorry Mr. Hull is upset and

I'm sorry you people had to do some fancy

lying but I did what I did and if I had to

do it over again being asked had I quit on

this thing, I'd say no I hadn't. I frankly
thought Kintner and Alsop's article had
something to do, possibly, with your coming

over.
A:

No, it didn't at all. Not the slightest
bit in the world. In fact, he called me

227

- -3up and wanted to talk with me about that

article and read me the first part of it,
and I said that I absolutely refused to talk
with him or with anybody about matters on

which I was constantly talking with you
people in the Treasury, and I thought it was
wholly undesirable and improper to do it
through the press and that anything that we
- any communioations that we had to make
with the Secretary of the Treasury we made

directly to him and not anywhere else.

H.M.Jr:
A:

Well, you're not upset are you?

Well, I am personally embarrassed a little
bit because this was pretty much my effort
and it is, you know, being turned back on
me a bit.

H.M.Jr:

A:

Well, I'm sorry if I've embarrassed you
personally but if I haven't hurt the cause

any I'm glad I did it.
Well, I don't think it has helped it much.
It's been a little harder but it hasn't
really seriously hurt it. But the Secretary
said he was going to talk with you.

H.M.Jr:

He is going to talk to me.

A:

He said he was.

H.M.Jr:
A:

H.M.Jr:
A:

Well, I've had no call from him. I'm here
if he wants to call me.
Well, I don't know, I think perhaps he did
this morning or said he was going to call.
There has been no call.

I told him that I had put in a call for
you and that I was going to tell you that
it did make it a little harder for me and

that I hoped that you'd go easy on the hobnailed boot as you said yesterday.

H.M.Jr:

Well, we're not - we're being very gentle

in view of the situation which I think is

228

-4desperate and I don't mind saying that I
think we re neglectful that we don't shut

down on the Italian and German funds, and

I feel very, very strongly about it and in
view of that I think I've been very gentle,

but I can only once in a while murmur
something like that when they throw it up
to me at the press. It was not a planted
question, I mean, they asked me.
A:

H.M.Jr:

Yeah.

They also asked me the question, "Is it
true that Greece hadn't got a single bullet
or gun from the United States?" and I

ducked that when I could have answered that

A:

one and placed the responsibility
Alsop told me that his story had been told
him by someone over in your place. He said
it was no one that I knew or no one who had

ever talked with me, and I said, well, I

was glad to know that.
H.M.Jr:

Well, I don't know what he could mean but,

as I say, I can't hide my feelings that I
feel very strongly that we move but if it

has embarrassed you I'm sorry, but you and

I want to lick this fellow Hitler.

A:

Absolutely.

H.M.Jr:

And I think this is one of the ways to do it.

A:

Yeah.

H.M.Jr:

But more power to you and please don't

A:

Oh, no. I won't lose my interest a bit

lose your interest on account of this.

but it does make it harder for me when
these come out.

H.M.Jr:

Well, I'm sorry and for that reason only.

A:

You sit on the press for a little while.

H.M.Jr:

I'm sorry for that reason only.

229

-5A:

H.M.Jr:

(Laughs). All right.
But
appreciate
your frankness and I hope
you Iappreciate
mine.

A:

I do entirely.

H.M.Jr:

Thank you.

A:

Thank you.

230

April 29, 1941

BAYXBOB STAFF
ARTANCE BOTTER RADIO PROGRAMS

- Studies, April 29.

Times 7:00-7:18 P.M.
Stations m Mashington, D.C., and Natual Broadcasting
System, Coast-to-Gmat Network.

Program Bytha Williams: Bone Commentary. Reports on
Defense Savings Bonds Drive.

Times

10:15-10:80 P.O.

Stations - Mashington, D.C., and National Broadcasting
Company, Best-to-Goast Rim Network.

Program Thinking Defense Bonda". Bagano n. Sloan,
Interestive Director Before Savings Staff, Treasury
Department, and Alvia w. Hall, Director of the
Direct of Ingraving and Printing, speakers.

Green

231
TREASURY DEPARTMENT
WASHINGTON

April 29, 1941.
MEMORANDUM FOR THE SECRETARY:

RE: Emil Ludwig

In arranging for foreign-language broadcasts, our
foreign-language radio people met and talked with Emil
Ludwig, who volunteered his services to make foreign-

language transcriptions. At the same time, he offered
to do anything he possibly could to further the sale
of Defense Bonds--such as talking before German-American

groups, writing for periodicals in the German language,
and taking part in foreign-language broadcasts.
His offer was of course accepted, with the understanding that he would be given appropriate assignments
later on.

Ludwig is now in Hollywood. To date, he has not
been used in any capacity by the Defense Savings Staff.

The release gotten out by Mr. Schwarz's office is attached.
It had my approval.

GRAVES.

232

TREASURY DEPARTMENT

Washington

Press Service

FOR RELEASE, AFTERNOON NEWSPAPERS,

Friday, April 25, 1941.

No. 24-76

4/24/41

Emil Ludwig, internationally known biographer and historian,
has been enlisted as a special worker among foreign language groups
in the Defense Savings program, the Treasury Department announced
today.

Mr. Ludwig, who volunteered his services, made only one
condition upon which he accepted the appointment --- that he receive
no pay.

"When one realizes what a tremendous privilege it is to be

a citizen of the United States," II he said, "it is a small matter
for an individual to offer his very best to any cause which is
devoted to the defense of Democratic ideals."

The writer will devote much of his time to explaining the
program for defense saving to German-American groups. He is

expected to take part in many foreign language broadcasts. The

Bonds and Stamps for popular participation in defense financing will
go on sale May 1.

Ludwig WAS born in Breslau, Germany. He started/writing for the
theater when he WAB fifteen but did not publish his first biography

until his thirtieth year.
-000-

233

CONFIDENTIAL
MEMORANDUM

April 29, 1941
To:

Secretary Morgenthau

From:

Oscar Cox

Subject: M of S.

Pending the completion of the work on the problem which
you put Sunday evening, you may want to be thinking about the two

following major points:

(1) The original legislation and Executive Order 6166
creating the Procurement Division can probably serve as the

legal basis for having the supply and related functions
handled by the Procurement Division. I am not sure that it
would be wise policy to handle the problem this way.
(2) The reenactment of a statute similar to the Overman
Act, passed during the last war, may be the best way of han-

dling the problem. A too direct attempt at setting up an
M of S may run into a big fight at this time and hamper the
defense program. The existing procurement agencies have

vested interests and a lot of backed-up support from the industries with which they have been dealing for years. My
guess is that they would lobby against the proposed set-up.

234
-2-

There are already other needs for a statute such as
the Overman Act. The Re-Organisation Act was primarily a
non-defense measure. Now there is need for reorganisation

for defense. Thus, for example, the Coast and Geodetic Survey
might serve our national defense interests by being merged

with the Hydrographic Office of the Navy rather than being in
Commerce. There are other similar changes which also ought to

be considered. At the same time, a statute like the Overman

Act would supply a clear legal basis for setting up an M of S.
Attached for your information is a copy of the Overman
Act.

Orean lot

235

Overman Act, Act of May 20, 1918,

$0 Stat. 556.

An Act Authorising the President to coordinate or
consolidate executive bureaus, agencies, and offices, and for
other purposes, in the interest of economy and the more efficient concentration of the Government.

Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled, That for the
national security and defense, for the successful prosecution of
the war, for the support and maintenance of the Army and Navy, for
the better utilisation of resources and industries, and for the more
effective exercise and more efficient administration by the President
of his powers as Commander in Chief of the land and naval forces the
President is hereby authorised to make such redistribution of functions among executive agencies as he may deem necessary, including

any functions, duties, and powers hitherto by law conferred upon any
executive department, commission, bureau, agency, office, or officer,
in such manner as in his judgment shall seem best fitted to carry
out the purposes of this Act, and to this end is authorised to make
such regulations and to issue such orders as he may deem necessary,
which regulations and orders shall be in writing and shall be filed
with the head of the department affected and constitute a public
record: Provided, That this Act shall remain in force during the continuance of the present war and for six months after the termination
of the war by the proclamation of the treaty of peace, or at such
earlier time as the President may designate: Provided further, That

the termination of this Act shall not affect any act done or any right
or obligation accruing or accrued pursuant to this Act and during the
time that this Act is in force: Provided further, That the authority
by this Act granted shall be exercised only in matters relating to
the conduct of the present war.

Sec. 2. That in carrying out the purposes of this Act the
President is authorised to utilise, coordinate, or consolidate any
executive or administrative commissions, bureaus, agencies, offices,
or officers now existing by law, to transfer any duties or powers from
one existing department, commission, bureau, agency, office, or officer
to another, to transfer the personnel thereof or any part of it either
by detail or assignment, together with the whole or any part of the
records and public property belonging thereto.

236
-2- -

Sec. 3. That the President is further authorised to
establish an executive agency which may exercise such jurisdiction
and control over the production of aeroplanes, aeroplane engines,
and aircraft equipment as in his judgment may be advantageous; and,

further, to transfer to such agency, for its use, all or any moneys

heretofore appropriated for the production of aeroplanes, aeroplane
engines, and aircraft equipment.

Sec. 4. That for the purpose of carrying out the pro-

visions of this Act, any moneys heretofore and hereafter appropriated
for the use of any executive department, commission, bureau, agency,
office, or officer shall be expended only for the purposes for which
it was appropriated under the direction of such other agency as may
be directed by the President hereunder to perform and execute said
function.

Sec. 5. That should the President, in redistributing the
functions among the executive agencies as provided in this Act, conclude that any bureau should be abolished and it or their duties and
functions conferred upon some other department or bureau or eliminated
entirely, he shall report his conclusions to Congress with such recommendations as he may deem proper.

Sec. 6. That all laws or parts of laws conflicting with the
provisions of this Act are to the extent of such conflict suspended

while this Act is in force.

Upon the termination of this Act all executive or administrative agencies, departments, commissions, bureaus, offices, or officers
shall exercise the same functions, duties, and powers as heretofore or as
hereafter by law may be provided, any authorisation of the President
under this Act to the contrary notwithstanding.
Approved, May 20, 1918.

237

CONFIDENTIAL

April 29, 1941

To:

The Secretary

From:

Mr. Young

Reference is made to the report on preliminary performance test of the Curtiss P-40 fighter which contained

the following sentence: "In this test the motor was held
down to 3,000 r.p.m. on take off at 40 inches manifold

pressure and for climbing restricted to 2,600 r.p.m."
In answer to your question as to what percentage of

total power this represents, I have been advised that it is
about 80 per cent in the first instance and normal permissible
in the second.

D.4.

238

CONFIDENTIAL

at the War of Code Department Ballogram 12:02 Received

December 23, 1940.

Lenion, filed 17:00, December 23, 1940.

The following information is in response to your eahled
instructions of December 13, 1940, to observe the Curtiso P-40 fighter

1. This plane has finished its preliminary performance test

carrying a gress test load of 7,240 150. However, it was not open
tionally equipped. 1 In this test the motor was hold down to 3,000
Topollo on take off at 40 inches mmifeld pressure and for climbing

restricted to 2,600 FePelle Its absolute eeiling was 32,000 feet and

its top speed 354 with its military load its wing leading is
30.5 lbs. per ago n.
2. This plane is to be equipped with armor and with four

caliber .303 wing free firing gm and two caliber .50 synchronised
makine gms.

3. IS is the opinion of that section that below 20,000
feet the P is as manneable as the Spitfire or the Herricane and

that over that height 18 is - less - The British
will - further tests where the operational airplane" is completed.
40 The engine and the emailing system are apparently sette-

factory. I believe that the P-40 could raise its esiling by at least

3,000 feet and gain in - and climb at heights over 20,000

CONFIDENTIAL

239

CONFIDENTIAL

If 2,000 as - seet. promised w take 300 - now - of the -

/ the Partially - or the - minist - - in this - is - I to that - of / in the
the Reviews
S. the speed of the Spitfine II is 365. Reports of
eeiling

37,600 toot. Its wing looding is 25.3 with a - / the
6. Equipped with the - - Memor the Reviews II

has The a speed of 305 Hopek and - absolute enizing of 37,600
to Merita Mark XX engine in this plane allowed 2,850 report, Seat, clinb

25,000 feet our that of 3,090 - with a service weight of
6,806 2bm. the wing Senting me 26.7 m

-

% As as - evallable I will eable further Information

/Security
of Appt.
w of -

Metrications

Secretary of -

- Plane Division

obder fill of Staff

Office 40 of Revia Intelligence
Gog

315
40

CONFIDENTIAL

Prepared Mr. Turner

240

Mr. Murphy
Mr. Haas

DEPARTMENT

INTER-OFFICE COMMUNICATION

DATE April 29, 1941

Secretary Mergenthau

TO

FROM

Mr. Haas

Subject: Current
Markets Developments in the High-Grade Security

SUMMARY

(1) Treasury bonds have risen sharply in price during the
past two weeks (Charts I and II). Taxable issues have
continued to show relatively greater strength than
tax-exempts.

(2) Weekly reporting member banks in leading cities increased their holdings of guaranteed securities by
$346 millions during the week ended April 23 (Chart

III). Presumably the greater part of this increase

reflects absorption of the two new RFC notes.

(3) High-grade corporate bonds have moved within a narrow

range during the past two weeks (Chart II). Municipals gained in price during that period (Chart IV).
The volume of new bond offerings to the public during
April has been relatively small.
(4) About 56 percent of the $5.0 billions increase during

the first ten months of the current fiscal year in

the volume of direct and guaranteed Government securi-

ties held by private investors was financed by the
expansion of bank deposits. The remaining 44 percent
(about $2.2 billions) was financed out of "real sav-

ings" or from idle bank balances. It is also interesting to note that only a little more than half of
the increase of member bank deposits (about $5.0

billions) during the same ten-month period can be
accounted for by Government financing operations.
The remainder was principally due to the growth of
bank loans.

241

Secretary Morgenthau - 2

I. United States Government Securities
Prices of Treasury bonds have risen sharply during
the past two weeks. Notes maturing in 3 to 5 years were
also strong, but short-term notes showed little change on
the average from the level two weeks ago. Taxable issues
continue to give a better performance than tax-exempts of
comparable term as is shown by the following table. Aven-

age price changes of all issues, without regard to taxexemption status, are also shown, by maturity classes, in
Chart I.

Average price change

April 14 - April 28

Tax-exempt

issues

Taxable
issues

All issues

:
:

:
:
:

(Decimals are thirty-seconds)
Notes

1 to 3 years
3 to 5 years

+ .01
+ .06

+ .15

+ .01
+ .09

+ .28

+1.01

+ .28

-

+1.08

0

Bonds

5 to 15 years
15 years and over

+1.08

The average yield of long-term Treasury bonds, moving

inversely to prices, decreased from 1.99 percent on April
14 to 1.91 percent as of yesterday's close (Chart II).
II. Bank Absorption of the New RFC Notes
Weekly reporting member banks increased their hold-

ings of guaranteed securities by $346 millions during the
week ended April 23. of this sum $207 millions was aocounted for by banks in New York City, and $139 millions

242
Secretary Morgenthau - 3

by banks outside of New York City (Chart III). Ina amuch as
this item in the weekly reporting bank statement ordinarily
changes very little from week to week, it is a reasonable

presumption that practically all of this increase reflects

the absorption by these banks of the two new RFC notes 18sued on April 17, the aggregate of which was about $644 mil-

lions.

III. High-grade Corporate and Municipal Securities
Prices of high-grade corporate bonds have varied within
a narrow range during the past two weeks. The Dow-Jones
average yield of twenty 20-year municipal bonds, moving in-

versely to prices, decreased by 3 basis points in the two
weeks from April 12 to April 26 (Chart IV).

Total new corporate and municipal offerings to the
public during April have fallen short of the amount offered
in the preceding month. New bond offerings thus far this
month amount to $117 millions (the bulk of which has consisted of municipals), and no new issues are expected,
according to press reports, between now and the end of the
month. During the month of March a total of $196 millions
of new issues was offered.

The only large corporate offering in immediate sight
18 that of $120 millions Columbia Gas and Electric Corpo-

ration. It is expected early in May and will be one of the
largest public utility issues ever filed with the SEC.
IV. Increase in the Public Debt and in Bank
Deposits - June 30, 1940 to April 30, 1941
May 1 will mark the opening of the new defense savings

bond program. The principal objective of this program is
to place as large a proportion as possible of future debt
increases in the hands of "real savers" in an effort to

minimize the inflationary potentialities of defense fi-

nancing. The present would appear, therefore, to be an
appropriate time to survey the absorption of new Government borrowing since the beginning of the current fiscal

year -- a period which coincides fairly closely with the
intensification of the defense effort.

243

Secretary Morgenthau - 4

In the period July 1, 1940 through April 30, 1941 it
is estimated that the total interest-bearing debt (including guaranteed obligations) will have increased by approximately $5.5 billions, of which $5.0 billions will have been
available to private investors. The estimated absorption
of this volume of Government securities is indicated in the
table below.

Estimated Absorption of Government Securities

by Private Investors
June 30, 1940 - April 30, 1941

(Billions of dollars)
Weekly reporting member banks
Other member banks
Non-member commercial banks

2.3
.3
.2

2.8

All commercial banks
Mutual savings banks
Insurance companies

.2
.5

All others - marketable obligations .7.8
- savings bonds

2.2
520

It would appear, therefore, that about 56 percent of
the increase in privately held debt was financed by bank
deposit expansion - 1.e., that portion which was absorbed
by commercial banks. The remaining 44 percent was presumably financed from real savings, or from idle bank
balances.

In view of the fact that the estimated increase in

member bank deposits subject to reserve requirements during
the ten-month period under consideration was about $5.0 bil-

lions, it 18 clear that the increase in the holdings of

Government securities by member banks accounted for only

about half of the increase in deposits during the period.

244
Secretary Morgenthau - 5

Part of the increase in member bank deposits not

matched by an increase in holdings of Governments may be

explained by an increase in other investments of about
an increase in member bank loans of about $2.1 billions.

$0.3 billions. Most of the remainder is accounted for by
(Member bank reserve balances have declined by about

$0.3 billions since June 30, 1940, but this has been about

offset by an increase of cash in vault.) The principal

changes in member bank assets accounting for the increase

in their deposits since June 30, 1940, are shown in the
following table:
Factors Accounting for the Increase in Member
Bank Deposits

June 30, 1940 - April 30, 1941

(Billions of dollars)
Increase in deposits:
Demand deposits

Time deposits

4.3
.7

5.0

Principal factors accounting for
the increase:

Government security holdings
Other investments
Loans

Cash and reserve balances

2.6

.3

2.1

-

5.0

It is apparent from the foregoing tables that more than
half of the Government's borrowing from the public during
the current fiscal year has been financed by the expension

of bank credit. It is also clear, however, that other

factors have been almost as important as Government borrow-

ing in the expansion of bank deposits.
Attachments

245
Chart I
CHANGES IN THE PRICES OF U.S. SECURITIES
Points Plotted Represent the Difference from December 20. 1940 Price of Each Maturity Class
1941
MAR.

MAY

1941

1942

JULY

SEPT.

FEBRUARY

NOV.

POINTS

POINTS

15

TETT

APRIL
22

29

19

26

POINTS

(NET CHANGE)

CHANGE)

Saturday Quotations

(NET CHANGE)

Daily

+

+

+3
+3

+

+1

+

+

+2
+2

0

0

+1

+1

+
+

NOTES
NOTES
-3

1-3 Yes.

Yes.

+

+

0

0
-4

.1

+

M

-1

-1

NOTES
NOTES

3-5 Yas.

3-5 Yey

-14

-1

-16

-2

-2

-14

-14

-11

-14

-3

.3

-2

-2

BONDS,

5-15 Yes

+

TO CALL

-26

-21

- BONDS,
5-15 Yes. TO CALL
BONDS

-2

-24

Over 15 Yes

-5

-5

TO CALL
-21

-24

-3

-6

-3

-34

-34

-7

N

-34

-34

-31

-34
-8

BONDS,

OVER 15 Yes. TO CALL

+

-

-9

+

-

4

4
-10

4

-

-5

SEPT.

NOV.

1942

I

194

15

a

JULY

MAY

-5

FEBRUARY

22

I

MAR.

JAN.

15

8

-11

JAN.

MARCH

22

29

19

12

26

5

(NET

MARCH
22

APRIL

1941

F 153 c
Office of the Secretary of the Treasury

246
Chart II
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S TREASURY

AND AVERAGE OF HIGH GRADE CORPORATE BONDS

1940

with

MAY

APR

MAR

JUNE

JULY

SEPT

AUG

OCT

NOV.

DEC

FEB

MAR

APR

MAY

I

1941

1941

AUG. SEPT. OCT. NOV. DEC

MAY

APR

Inversed.Scale
PER CENT

PER CENT

WEEKLY. Saturday Quotations
1.8

1.8

IS

20

20

20

Long Term
Treasury

22

2.2

22

Long Term Treasury

oz years or more to contract call data)
24

2.4

24

24

2.6

26

28

2.8

28

Corporate

Corporate
3.0

3.0

32

3.2

14

3.4

3.6

3.6

10

12

14

36

PSR
CENT

PER

PER

CENT

CENT

100

100

100

Spread Between Long Term

Treasury and Corporate

Spread
so

80
80

40

60
60

40

40
40

TO

MAY

H

0

Made Treatment

APR

JUNE

JULY

1940

AUG

SEPT

OCT.

NOV

DEC

JAN FEE MAR APR MAY JUNE JULY

AUG

SEPT

1944

OCT

NOV

DEC

0

MAR

U.S.

.

FEB

THE

18

MAR

is

.

19
"

APR

.

.

JAN

14

I

1

20

20

0

20

MAY

1941

. Change in competition of Long Term Treasury average
F-34-0-1

0

800

0

TOTAL

400

600

200
BONDS

1000

800

600
400

200

0

-400
-200

DOLLARS
WILLIONS

1400

200

-200
1000BILLS

BONDS

0

400

18

400

27

27

DECEMBER

F -146-C

13
AUGUST
AUGUST
AUGUST
13

AUGUST
30
30

16
JULY
JULY

16
JULY

JULY
2

2
18
18
JUNE
JUNE
JUNE
JUNE

4
4
21
21

MAY
MAY
MAY

MAY

7
7
1 941

- 941

23
APRIL

c
APRIL
APRIL
APRIL

9
26
26
12
MARCH
MARCH
MARCH
12

MARCH
NOTES

GUARANTEED

-200

-400

26
TOTAL

TOTAL
26

12
FEBRUARY
12

FEBRUARY

FEBRUARY

GUARANTEED400

25
29

15
15

BILLS

JANUARY
ABILLS-400

DECEMBER

JANUARY
JANUARY
New York City

1
All Other

All Cities

18
DECEMBER

940

NOTES-400GUARANTEED

4

DECEMBER

JANUARY

FEBRUARY

4
1
Division of Research and Statistics

1940

0

0

800

600
400
200
23

800

1000

600

200

200

800

1000

1400

1200

1200Office of the Secretary of the Treasury

DOLLARS

Cumulative Net Change from December 4. 1940

-200

-200

-400

-200

MILLIONS

U.S. GOVERNMENT SECURITY HOLDINGS, WEEKLY REPORTING MEMBER BANKS

800

0
2.0

1.8

2.4

2.2

2.6
2.8

3.0
3.2
20

.40

.60
PER
invested Scale

DEC

..
AUG

NO
1941
1941

. AUG 14 10 SEPT - OCT NOV DEC

JUNE

AND
MAY

MAY

IT
APR
MAR
FEB

JAN
DEC

I

NOV

OCT
Yields Based on Saturday Quotations
SEPT
AUG
AUG. SEPT OCT NON DEC JAN FEB MAR

"Break - Any indicates change - composition of Long Term Treasury everage

Office the Secretary the Treasury

Differential

Twenty 20-Year Municipal Bonds

A/D
JULY

1940
1940

a

AM

AND Dow-JONES AVERAGE OF MUNICIPAL BONDS

11
MAY
MAY
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY

Long Term Treasury" (12 call date)

JAN PER MAR APR

JAN
--

o
.60

8.2

2.8
2.6
2.0

Inverted Scale

PER CENT

2.2

2.4

PER

3.0

1.8

PER CENT

.40

.20

F-104-0CENT

CENT

249
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE April 29, 1941
TO

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
243,000
Purchased from commercial concerns £14,000

The Federal Reserve Bank of New York sold £10,000 in registered sterling

to the American Express Company.

Open market sterling was steady at 4.03-1/4. Transactions of the reporting

banks were as follows:

Sold to commercial concerns

-On

Purchased from commercial concerns £15,000

In New York, closing quotations for the foreign currencies listed below
were as follows:

Canadian dollar
Swiss franc
Swedish krona
Reichamark

Lira

Argentine peso (free)

Brazilian milreis (free)
Mexican peso
Cuban peso

11-11/16% discount
.2321
.2384
.4005
.0505
.2350
.0505
.2066

3-7/8% discount

In Shanghai, the yuan in terms of our currency was 1/32 lower at 5-5/324.
Sterling was quoted at 3.88-1/4, off 2-1/44. According to a cable received from
Shanghai this morning, the four Chungking-controlled banks reopened yesterday.
There were no gold transactions consummated by us today.
No new gold engagements were reported.

In London, the price fixed for both spot and forward silver was again
23-1/2d, equivalent to 42.67
The Treasury's purchase price for foreign silver was unchanged at 35 Handy
and Harman's settlement price for foreign silver was also unchanged at 34-3/44.

250

-2-

We made one purchase of silver amounting to 100,000 ounces under the Silver

Purchase Act. This consisted of new production from foreign countries, for forward
delivery.

The report of April 23 received from the Federal Reserve Bank of New York
giving foreign exchange positions of banks and bankers in its district, revealed
that the total position of all countries was short the equivalent of $7,391,000,
an increase of $112,000 in the short position. Net changes were as follows:
Short Position
Short Position
Change in
April 16
Country
April 23
Short Position*
England**
Europe
Canada

Latin America
Japan

Other Asia

All others
Total

$ 761,000
3,306,000

$ 656,000
3,522,000
157,000 (Long)

1,000
378,000

375,000

- 158,000

- 3,000

1,387,000
1,440,000

+ 76,000

168,000

+ 237,000

$7,391,000

+ $112,000

1,311,000
1,591,000
69,000 (Long)
$7,279,000

- $105,000
+ 216,000

- 151,000

*Plus sign (+) indicates increase in short position, or decrease in long position.
Minus sign(-) indicates decrease in short position, or increase in long position.
"Combined position in registered and open market sterling.

KMR.
CONFIDENTIAL

251
TREASURY DEPARTMENT

Arrenit

INTER-OFFICE COMMUNICATION

DATE April 29. 1941

Secretary Morgenthan

TO

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL

Official sales of British-owned dollar securities under the vesting order
effective February 19. 1940:

No. of Shares $ Proceeds of
Shares Sold

Sold

Nominal Value
of Bonds Sold

$ Proceeds of
Bonds Sold

25

2,470
10,271
20,641
115,894
35.398

26

732

841,846
28,716

11,000
1,000
375,000
10,000
10,000
14,000

185,406

3,130,488

421,000

485,937

7,647,055-1/2

235,310,947

27,289,750

26,464,086

7,832,461-1/2

238,441,435

27,710,750

26,950,023

April 21
22
23
24

119,471
134,045
568,334

1,438,076

10,885
1,044
440,735
11,488
10,968
10,817

Sales from

2/22/40 to
4/19/41

Total 2/22/40
59 4/26/41

Miss Poate reported sales of non-vested securities for the week ending
April 19 totaled $350,000.

HMR.

252
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

Secretary Morgenthau

April 29, 1941.

J. J. O'Connell, Jr.
For your information
The usual weekly meeting of the Price Administration
Committee was held to-day at 12 o'clock in Mr. Henderson's
office. The meeting was necessarily brief because

Mr. Henderson was due at the White House at 12.30.

Mr. Henderson reported that the order freezing steel
prices is being quite generally obeyed, and that his men
are conducting field studies to see whether any particular
companies are being seriously disadvantaged because of

having higher unit costs than their competitors.

A general discussion was had with regard to coal

prices. Mr. Henderson pointed out that the understanding had been that there would be a slight revision

upward when the bituminous coal mines recommenced operations

at higher wage levels, but said that the actual revision
would not be made for a few days. One reason for the
delay apparently is that the mine operators may, at contemplated rates of operation, be able to absorb the increase in wages without unduly impairing their profits.
This is being studied.
Mr. Henderson also read to the Committee a letter
he proposes to send to Congressman Cannon relative to

action recently taken by Mr. Henderson, in cooperation

with the Secretary of Agriculture, to support the market

price of certain farm commodities as to which an increased

supply is essential. The letter was considered excellent

by all present, although Secretary of Agriculture Wickard
expressed some doubt as to whether the letter would

satisfy the Congressman. He pointed out that he
personally had had some difficulty in making critics
understand that in supporting prices of particular farm
commodities the Department is not "pegging" prices, but
is rather attempting to fix a guaranteed minimum at a
level which will stimulate production.

253

Secretary Morgenthau,

2.

Mr. Henderson referred briefly to the situation
in the copper industry, and stated that existing prices

are being maintained in satisfactory manner without

resort to a freezing order. The existing level,

generally speaking, means 12 cent copper for the three
biggest producers, Anaconda, Kennicott and PhelpsDodge, and 12 1/2 cent copper for the smaller producers.
This, of course, is a two-price system, but Mr. Henderson

explained that it follows the custom of the industry

and is one which he believes can be maintained for
sometime without trouble.
Mr. Henderson left the meeting at 12.25 and,

after some general discussion among Committee members,

the meeting adjourned at 12.50.

Josele J.Oleman go

254
POUCH AIR MAIL
EMBASSY

Berlin, April 29, 1941.
MEMORANDUM

for Treasury from Heath

The following information was obtained from an entirely
reliable source who is authoritatively informed concerning
Germany's economic situation. He declined to give any
detailed indications but characterized the general situation
as one of vexatious and continuous strain which would be
aggravated rather than r elieved by the victories in the
Balkans. At the present time the main shortages were in
petroleum, non-ferrous metals and ores and rubber. The
most serious immediate shortage was in rubber. So hand
to mouth, he said, was Germany's general material position

that she had been unable to keep up deliveries of oil,

largely due to transportation difficulties from the
Rumanian fields, and other materials to Italy. Tight,

however, as the material situation was, economic
considerations would not have any vital effect on German

life and military operations during the present year.
He remarked that it was surprising that the British,

realising Germany's oil problem, had not immediately
launched a bombing attack from their Greek bases on the
Ploesti fields in Rumania, and he remarked that he had

also been informed that retiring British troops in Libya
had failed to destroy all gasoline supplies.
While Germany's economic situation would not vitally

hinder the operation of the military machine during the
present year, it would greatly handicap it next year
unless in the meantime Germany acquired new sources of

food and oil. It was unlikely that even the acquisition
of great new areas would immediately change the food

situation and it was probable that rations would be
materially reduced before the end of next winter.
There would be a out in meat rations before that time
and possibly in fat rations also.
Donald R. Heath

First Secretary of Embassy
DRH/hu

Approved:

Leland Morris

Charge d'Affaires a.i.

255

(COPY)

THE SECRETARY OF THE NAVY

Washington

Lkk-6/ER14(410407)

29 April 1941

Sir:

In accordance with the wishes of the President
it is requested that a Coast Guard veesel of the
POTOMAC class be transferred to the Navy for duty
as an escort vessel for the POTOMAC.

Upon the delivery of the vessel so designated
to the Navy at the Navy Yard Washington, and as soon
thereafter as the commissioning can be effected, the

CUYAHOGA will be returned to the Coast Guard.

Respectfully,

(Signed) FRANK KNOX

The Honorable,

The Secretary of the Treasury.

Note in HM,Jr's handwriting " Gaston
0. k.
H.M. Jr.' "

256

(COPY)

DEPARTMENT OF STATE
WASHINGTON

April 29, 1941

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury, and
encloses, for Mr. Morgenthau's information, three
copies of the press release issued by the Department

setting forth the proclamation issued by the President
on April 24, 1941, proclaiming a state of war between
Bulgaria, on the one hand, and Yugoslavia and Greece,

on the other hand, issued pursuant to section (1) of
the Neutrality Act of November 4, 1939; and rules and

regulations pursuant to various sections of that same
act.

Enclosures:

Three copies of the press
release dated April 25,
1941, Number 200.

Three copies each of the
three press releases dated
April 25, 1941, Numbers
201,202, and 203.

257
DEPARTMENT OF STATE

FOR THE PRESS

APRIL 25, 1941
No. 200

PROCLAMATION OF A STATE OF WAR BETWEEN BULGARIA, ON THE
ONE HAND, AND YUGOSLAVIA AND GREECE, ON THE OTHER HAND

BY THE PRESIDENT OF THE UNITED STATES OF AMERICA
A PROCLAMATION

WHEREAS section 1 of the joint resolution of Congress approved November 4, 1939, provides in part as
follows:

"That whenever the President, or the Congress

by concurrent resolution, sholl find that there ex1sts a state of war between foreign states, and that
it is necessary to promote the security or preserve
the peace of the United States or to protect the
lives of citizens of the United States, the President shall issue a proclamation naming the states
involved; and he shall, from time to time, by proc-

lamation, name other states as and when they may
become involved in the war."

AND WHEREAS it is further provided by section 13 of

the said joint resolution that

"The President may, from time to time, promulgate such rules and regulations, not inconsistent
with law, as may be necessary and proper to carry

out any of the provisions of this joint resolution;
and he may exercise any power or authority conferred
on him by this joint resolution through such officer
or officers, or agency or agencies, as he shall

direct.

NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President

the United States of America acting under and by virtue
of of the authority conferred on me by the said joint resolution, do hereby proclaim that, Bulgaria having without state of
justification attacked Yugoslavia and Greece, a
exists between Bulgaria, on the one hand, and Yugowar slavia and Greece, on the other hand, and that it is nec- of

to promote the security and preserve the peace of
the United States.

the essary United States and to protect the lives of citizens

And I do hereby enjoin upon all officers of the
United States, charged with the execution of violations the laws

thereof, the utmost diligence in preventing trial

of the said joint resolution and in bringing to
and punishment any offenders against the same.

And I do hereby delegate to the Secretary of State

the to exercise any power or authority conferred

on me power by the said joint resolution, as made effective by
this

258
-2-

this my proclamation issued thereunder, which Is not
specifically delogated by Executive order to some other
officer or agency of this Government, and the power to
promulgate such rules. and regulations not inconsistent
with law as may be necessary and proper to carry out

any of its provisions.

IN WITNESS WHEREOF, I have hereunto set my hand and

caused the seal of the United States of America to be
affixed.
DONE at the city of Washington this twenty-fourth

day of April, in the yoar of our Lord nineteen hundred
and forty-one, and of the Independence of the United
States of America the one hundred and sixty-fifth.
FRANKLIN D. ROOSEVELT

[SEAL]

By the President:
CORDELL HULL

Secretary of State.
***

259

DEPARTMENT OF STATE

FOR THE PRESS

APRIL 25, 1941
No. 201

RULES AND REGULATIONS GOVERNING THE

SOLICITATION AND COLLECTION OF
CONTRIBUTIONS FOR USE IN BULGARIA

The Secretary of State announces that the rules and

regulations under section 8 of the joint resolution of
Congress approved November 4, 1939, which he promulgated

on November 6, 1939, henceforth apply equally to the

solicitation and collection of contributions for use in
Bulgaria.
CORDELL HULL

Secretary of State
***

260

DEPARTMENT OF STATE

FOR THE PRESS

APRIL 25, 1941
No. 202

REGULATIONS UNDER SECTION 5 OF
THE JOINT RESOLUTION OF CONGRESS
APPROVED NOVEMBER 4, 1939

The Secretary of State announces that the regula-

tions under section 5 of the joint resolution of Congress
approved November 4, 1939, which he promulgated on Novem-

ber 6, and amended November 17, 1939, henceforth apply

equally in respect to travel by citizens of the United
States on vessels of Bulgaria.
CORDELL HULL

Secretary of State
***

261

DEPARTMENT OF STATE

FOR THE PRESS

APRIL 25, 1941
No. 203

REGULATIONS UNDER SECTION 2 (c) AND (1) OF
THE JOINT RESOLUTION OF CONGRESS APPROVED
NOVEMBER 4, 1939

The Secretary of State announces that the regula-

tions under section 2 (c) and (1) of the joint resolution
of Congress approved November 4, 1939, which he promulgated on November 10 and November 25, 1939, henceforth

apply equally in respect to the export or transport of
articles and materials to Bulgaria.
CORDELL HULL

Secretary of State

262

C

0

P

PLAIN

Ottava

Dated April 29, 1941
Rec'd 9:53 p.m.

Secretary of State,
Washington.

91, Twenty-ninth.
The new Canadian budget which was introduced into Parliament

this afternoon provides for heavy increases in direct taxation. Incividual income tax rates are sharply raised as well as the supplemental

National defense tax. To eliminate inequalities arising from concurrent
Provincial income taxation the Government has proposed that the provinces

withdrew from this field by offering to pay annually for the duration of
the war either the amount which provincial tax yielded in nineteen forty

or the cost of provincial debt service in the nineteen forty fiscal year.
For the first time the Dominion will levy an inheritance tax but without
requesting the provinces to withdraw from this field.
Tax proposal of direct American interest include the following:

One, taxes on dividends, interest, royalties etc. paid to non-residents
as provided under section nine B two are raised from five to fifteen
percent. Two, a three cent Federal tax on gasoline designed to conserve

dollar exchange and curtail civilian expenditures. This rate considered
in line with American Treasury tax suggestions and not likely to affect
tourist trade. Three, vegetable oils were added to list of goods to be
imported from non-sterling countries only by license on a diminishing
scale. Four, war time treatment of imports from the United Kingdom

263

-2-

include free entry under war exchange conservation act for certain unimportant

items; a discount of twenty-five percent in present British preferential
rates applicable to woolen goods, clothing and footwork; and a fifty
percent discount on certain specified goods as well as almost all other

dutiable items in tariff groups one and five to eleven inclusive.
Changes in tariff on United Kingdom goods are not expected to increase
imports significantly and were suggested by Canadian Government to

facilitate importation of quote whatever goods under changing
circumstances United Kingdom wishes to export end quote
The budget speech reviewed Canada's exchange problem with the

United States and the growing surplus in accounts with Britain. Despite
foreign exchange control and measures to conserve dollar exchange the

gross deficit in the United States dollar account from the outbreak of
war to March 31, 1941 was given as $477 million Canadian. After deducting gold received from Britain a balance of $225 million Canadian

was covered by depleting gold holdings and utilising certain United
States balances and holdings. Finance Minister had estimated that the

probable deficit in the balance of payments on capital and current
account with the United States in the coming fiscal year would
approximate $467 million. Since then the Hyde Park agreement has been

reached which will greatly ease the situation. He considered it was
quote generaus and helpful end quote in meeting the exchange problem

but it quote does not remove all need for the conservation of foreign
exchange end quote. Accordingly proposals for parity of the Canadian

dollar in New York and a lifting of restrictions on dollars for pleasure
travel were discounted.

Full texts of speech and resolutions will be mailed tomorrow and
careful analysis as soon as possible.
HPD

ehicopy

MOFFAT

264

Federal Reserve Bank
of New York
OFFICE CORRESPONDENCE
TO

FROM

CONFIDENTIAL FILES

L. W. Knoke

Date April 29. 1941.
SUBJECT: TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.

I called Mr. Bolton at 10:10 o'clock a.m. and explained that we
night receive instructions from the Yugoslav Minister in Washington to make
$2,000,000 available to the Yugoslav Government in Jerusalem. The instructions
might be for us to pay and transfer this amount through the Bank of England to
Barclays (D. C. & 0.) Jerusalem to be held at the disposal of the Government of

Yugoslavia. If we did receive these instructions, would it be in order for us
to credit the amount to the G account of His Britannic Majesty's Government?

Mr. Bolton replied that off hand he should say it would be in order, however,
he was talking from his home and would check into it further upon his return
to the office tomorrow. This thought occurred to him right then he continued
that instead of dealing with Barclays (D. C. & 0.) Jerusalem they would, in
accordance with standing practice, deal with Barclays (D. C. & 0.) London

(Jerusalem's head office) and have the head office arrange with its branch. If
the transaction were handled as tentatively contemplated now, would Barclays

(D. C. & 0.) Jerusalem hold the dollar amount (not Palestine pounds) at the
disposal of the Yugoalav Government? Could we be sure that dollars are placed

at the disposal of the Yugoslav Government so that the latter could sell their
dollar checks against Palestine pounds or against U. S. bank notes if the latter
are available in Jerusalem? Mr. Bolton assured me that the Yugoslavs would get

every banking facility from Barclays that they would require. I had previously

265
-2-

suggested as a possible alternative that we might deal with Barclays

(D. C. & 0.) in New York but Mr. Bolton was very quick to state that
they would prefer to have it done through the Bank of England,

LWK:KW

COPY:mg:5/5/41

266
April 29, 1941

Dear Mr. Lovett:

Thank you for your letter of April 22nd
regarding combat planes.

I am very much interested in having this
information and would appreciate it if you would
send it to me monthly.

Yours sincerely,
(Signed) H. Morgenthau, Jr.

Mr. Robert A. Lovett,
Assistant Secretary of War,
Mar Department,

Washington, D. C.

267
Miss Chauncey:

Please write a little note and
acknowledge receipt and say that
Mr. Morgenthau would like to have

this monthly.

Letter should be for Secretary's sig.
April 28th

Mrs. Klotz

268

WAR DEPARTMENT

Washington

April 22, 1941

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.

Dear Mr. Secretary:
I attach a condensed schedule showing the

situation of the Air Corps as of March 31 with respect
to the number of combat planes on hand suitable for
use against a modern air force.
Footnote on the attached schedule shows the
number coming through with leakproof tanks and armor.
Very sincerely yours,

/8/ Robert A. Lovett
ROBERT A LOVETT,

Assistant Secretary of War (Air)
Enclosure

SECRET

COMPARATIVE CONDITION OF COMBAT EQUIPMENT

FIT FOR USE AGAINST MODERN AIR FORCE

Heavy
Bombers

Medium
Bombers

Light

Bombers

Pursuit

Total

January 8

63

33

.0

193

289

January 31

57

33

13

176

279

February 28

68*

33

39**

208***

348

March 31

79#

63##

81###

327####

550

Notes

None with armor; 5 with leakproof equipment.
26 with leakproof tanks and rear armor.
23 with leakproof tanks and armor.
None with armor; 15 with leakproof tanks.
## 14 with leakproof tanks; none with armor.
### 66 with leakproof tanks and rear armor only.
#### 137 with leakproof tanks and rear armor plate.

SECRET

270
TREASURY DEPARTMENT
WASHINGTON

April 29, 1941.

MEMORANDUM FOR THE SECRETARY:

I attach Mr. Houghteling's report on the
liquor survey, with a two-page condensation,
as you requested.

Incidentally, Mr. Houghteling is doing
exceedingly fine work on our Savings Bond
program.

GRAVES

271
The Secretary

To:

April 21, 1941.

From: James L. Houghteling

I present herein a summary of my study of the Treasury's

regulatory power over the alcoholic beverage trade, in its
relation to the National Defense; on which I have already
presented a full report.
I. The Alcohol Tax Unit has remarkably broad power to
regulate the manufacture and wholesaling of alcoholic beverages,

but only the following power to regulate the retail liquor trade:
(1) inspection to determine that no non-taxpaid goods are handled;
and (2) inspection to determine that the occupational stamp tax
has been paid.

These functions give the A.T.U. the right to enter and

inspect all retail liquor establishments. In actual practice,
this inspection is done by 177 "junior inspectors". There are
approximately 400,000 retail liquor establishments in the United
States, 80 that, on the basis of a 280-day year, each inspector
must average 8 inspections per day, to cover every retail establishment only once a year. Obviously, such a schedule is a
physical impossibility. Probably not more than 60% of the retail
liquor dealers in the country were visited even once during the

past fiscal year. This inadequacy of the junior inspectors'
staff undoubtedly represents a substantial loss of revenue from
the occupational stamp tax and also through the sale of untaxed
liquor.

Under your authorization, I requested the Work Projects

Administration to reestablish its Retail Liquor Dealers

-2-

272

Inspection Project. Commissioner Howard O. Hunter has replied

that this cannot be done. I, therefore, recommend an application
to the Bureau of the Budget for a deficiency appropriation to
employ 200 additional junior inspectors, with additional clerical

help and travel expense. Such an appropriation will bring in
additional revenue considerably greater than the amount appro-

priated, and will enable the A.T.U. to perform the inspection
duties imposed by the Internal Revenue statutes.

II. While adequate inspection of retail establishments
by the Alcohol Tax Unit will have a salutary moral effect,
really effective regulation of the retail liquor trade depends
on State and local governmental bodies. The Federal Government

can exert great influence in this field, but not primarily
through the Treasury Department. The Federal Security Agency

has been designated by the President to coordinate all health,
welfare, and related defense activities. Mr. Paul McNutt and
Mr. Charles P. Taft are developing comprehensive plans for the

health and welfare not only of the naval and military forces
but of workers in defense industries, including the cooperation
of State and local bodies, both official and voluntary. I have
been in touch with both and have offered them the complete co-

operation of the Treasury. So far, however, our cooperation
has not been called for.

James 1. Augus

In

The Secretary

April n, 1941.

273

From Jesse L Boughtelling

I present herein a - of - study of the treasury's
regulatory pour over the alcoholic boverage trade, is ste
relation to the National Defence, - which I have already
presented a full report.
1. The Alechel Tax Unit has remorably brand power to
regulate the manfacture and wholesaling of alscholic beverages,

but only the following power to regulate the retail liquor trader
(1) inspection to determine that no non-taxpaid goodscare handled,
and (a) inspection to determine that the occupational stamp tax
has been paid.

These functions give the A.T.U. the right to enter and

inspect all retail liquer establishments. In actual practice,
this inspection is done by 199 "Junior inspectors". There are
approximately 400,000 retail liquer establishments in the United
States, se that, on the basis of a 880-day year, each inspector
met average . inspections per day, to cover every retail estab
lichment only see a year. obviously, such a schedule is a
physical impossibility. Probably not more than 606 of the retail
liquor dealors in the country were visited even onee during the
just fiscal year. This indequancy of the Junior inspectare
staff underbredly represents a substantial less of revenue from
the occupational stamp tax and also through the sale of extend
liquer.

Under your authorisation, I requested the Work Projects

Ministration to #vestablish 196 Retail Liquer Dealers

274
Inspection Project. Commissioner Howard O. Hunter has replied

that this cannot be done. 1, therefore, recomend an application
to the Bureau of the Budget for a deficiency appropriation to
employ 800 additional Junior inspectors, with additional clorical
holp and travel expense. Such an appropriation will bring is
additional yevenue considerably greater than the amount appro-

printed, and will enable the A.S.U. to perfers the inspection
duties imposed by the Internal Revenue statutes.

II. While adequate inspection of retail establishments
by the Alcohol Tax Unit will have a salutary moral effect,
really effective regulation of the retail liquor trade depends
on State and local governmental bedies. The Federal Government

can exert great influence in this field, but not primarily
through the Treasury Department. The Federal Security Agency

has been designated by the President to coordinate all health,
welfare, and related defence activities. Mr. Paul MoNuss and
Mr. Charles P. Taft are developing comprehensive plans for the
health and welfare not only of the naval and military forces
but of workers in defense industries, including the cooperation

of State and local bodies, both official and voluntary. I have
been in touch with both and have offered then the complete w
operation of the Treasury. So far, however, our cooperation
has not been called for.

nars

275
To:

The Secretary

From: James L. Houghteling

Under your instructions I have been making a study of
the problem of alcoholic beverages and their relation to the

National Defense situation, with a view to the prevention of
abuses which may retard and hamper the National Defense.

The primary object of my investigation has been to determine
how the Treasury Department can best use its considerable
regulatory powers to that end.

with the cooperation of Stewart Berkshire, head of the
Alcohol Tax Unit, and members of his staff, I have studied
the operations of that organization and gone through the files
of a number of specific cases. I have read the statutes and

regulations pertaining to the work of the Unit itself and of
the Federal Alcohol Administration. I have contacted other
agencies of the Federal Government handling National Defense

problems to learn what steps they plan to take in this matter.
This part of my investigation has necessarily been slow
because these other Federal agencies - the War Department, the

Navy Department and the Federal Security Administration - are

exploring fields of activity which are new to them. They are
making remarkably good progress (as I shall explain later in
this report), but the problem of preventing the abuse of

alcoholic beverages is only a small item in their program of

-2 -

276

protecting the health and morale of National Defense units

(industrial as well as military) and it has therefore not
been one of the first problems to be taken up by them.
(1) THE REGULATORY POWERS OF THE FEDERAL TREASURY.

The industry of manufacturing and rectifying
alcoholic beverages and of their wholesale distribution is
the most thoroughly regulated and carefully supervised of

all the industries in the United States, according to expert
observers. As far as the Federal Government is concerned,

this regulation and supervision is twofold:
(a) The Treasury Department, through the
Alcohol Tax Unit of the Bureau of Internal Reve-

nue, very thoroughly supervises all the steps
of distilling, rectifying, brewing and wine manufacturing in order to determine, for taxation
purposes, the exact alcoholic content of all
beverages manufactured. This is (except in the
case of beer) the basis on which it assesses and
collects taxes. It also exercises widespread
police powers to prevent the evasion of this
supervision and taxation.

(b) As a result of the repeal of the Prohibition Amendment and of concurrent public demand

for a further degree of supervision over the
newly legalized alcohol industry, the Congress
passed the Federal Alcohol Administration Act

-3 -

277

making the Federal Treasury responsible for the

maintenance of fair trade practices in the industry and for the enforcement of the Twentyfirst Amendment.

Thus the Treasury Department has been placed in a position to supervise and regulate the manufacture and wholesale

distribution of alcoholic beverages to a degree far exceeding
the Federal regulations of any other industry; and this supervision is effectively enforced. In general, the members of the
industry regard this supervision as a protection and a stabil-

izing influence and a great deal of latent good will seems to
exist between the Government and the manufacturers and wholesalers.
(2) LIMITATIONS ON FEDERAL SUPERVISION.

However, there is a Chinese wall which separates

Federal supervision from the retail liquor trade. I have read
carefully the discussions in the Congress which preceded the
enactment of the Federal Alcohol Administration Act in 1935.

It was obviously the sense of the Congress that the liquor

traffic should be controlled, as far as was constitutionally
possible, in order to avoid the abuses which had grown up be-

fore and during Prohibition. In general, the leaders of the

-4-

278

Congress applied themselves with a good deal of sincerity

and intelligence to the drafting of as practical a piece of
legislation as possible. But it was quite obvious that they

all felt that they could not constitutionally touch the retail
liquor trade. A great deal of verbiage in the Federal Alcohol
Administration Act which raises serious difficulties from an
enforcement standpoint was left that way consciously in order

to indicate that the sole purposes of the law were to regulate
interstate commerce and to prevent monopoly and unfair re-

straint of trade. Some objectionable practices were thus

put practically beyond the reach of the law. This act was
passed shortly after the Supreme Court of the United States,
in its decision of the Schechter case, had declared the

National Industrial Recovery Act unconstitutional; and the
efforts of Congress were obviously directed toward the drafting of law which would not be knocked out in the same way.

(It may be noted that various decisions of the Supreme Court
since that time have tended to broaden the powers of Congress

to regulate interstate commerce, and it is likely that in
the light of subsequent decisions the Federal Alcohol Administration Act could today be amended so AS to eliminate a certain

number of its ambiguities. I will refer to this point again
later. )

In general the retailer of alcoholic beverages is completely independent of the Federal Government, except that:

-5-

279

(a) he must pay an occupational stamp tax required by Section 3250 of the Internal Revenue
Code.

(b) he must handle only such alcoholic beverages as bear revenue stamps identifying them as
taxpaid; and

(c) he must maintain at his place of business

a record of all the distilled spirits, wines and
fermented malt liquors received, the quantity
thereof, and from whom and the date when received,

and must make such records available to the inspec-

tion of Government officials. (Section 3252 of the
I.R.C. ).
(3) EXTENT TO WHICH FEDERAL SUPERVISION OF THE RETAILER
CAN BE INCREASED.

It seems evident that the intention of the Congress

in enacting Section 3252 of the I.R.C. was to protect the revenue by providing that Federal officials should check the retailers' records of purchases against the wholesalers' records
of sales. This, however, has never been done, because the personnel of the Alcohol Tax Unit has never been large enough to
undertake such an extensive job of checking. Section 3252

permits the retailer to keep these records in the form of

original invoices or bills if he likes. Officials of the
Alcohol Tax Unit states that the records of some 400,000

individual members of the retail liquor trade, many of them

-6-

280

operators of small and poorly managed establishments, are in

general kept so sketchily that the job of checking them would
be tremendous and that the information gained would not be worth

the great effort involved. I believe that this is correct.
This section of the law could be greatly improved by amendment,

but I question whether its objective, even if made more easily
attainable in that way, would be worth the large additional
expense, or whether the Congress would be willing to appropriate
funds for the additional personnel required.

In this connection, it should be noted that the Alcohol
Tax Unit, in its more fundamental work of enforcing the occu-

pational tax law on retailers and checking their stock-in-trade
for non-taxpaid goods, is confronted with the task of inspecting
400,000 retail establishments selling alcoholic beverages with
a force of only 177 "junior inspectors." Each one of these officers must thus inspect approximately 2,240 retail premises
per year or an average of 8 per day in a 280-day year. Obviously,

such a schedule is impossible of fulfilment. The report of the
Secretary of the Treasury shows that in the fiscal year 1940
the A.T.U. made only 284,081 such inspections (representing

5-5/7 visits per junior inspector per day in a 280-day year)

and, in view of the urgent need of follow-up visits in flagrant
cases, it seems unlikely that more than 60% of the retail
liquor dealers in the country were visited even once during
the fiscal year. Even this represents such a heavy schedule

for Junior inspectors that really effective work cannot be

-7 -

281

done. In the fiscal years from 1935 to 1939, this inspection was
partly carried on by WPA workers (who in their biggest year, 1939,
made 480,828 individual inspections); but since July 1, 1939, WPA
cooperation has been terminated. At your suggestion I have tried

to have this WPA project reinstated. I attach hereto an exchange
of letters with Howard O. Hunter, Administrator of the WPA,
embodying the unsuccessful outcome of my effort. Under "recom-

mendations" in a later part of this report, I will discuss this
matter further.

This checking of stamp tax payments and of the retailer's

stock-in-trade to see that it is all taxpaid, represents the
only contact of the Federal Government with the retailer. His
business is entirely intrastate and hence the regulation thereof
lies entirely within the Police Power of the individual States.
(5) CONTROL OF ALCOHOLIC BEVERAGES AS A MEASURE OF
NATIONAL DEFENSE.

The emergency of the National Defense opens a new line
of cooperation between the Federal, State and local governments
in many fields heretofore closed to the Federal Government.

As a function of the work of the National Defense Advisory
Commission, the President has appointed Administrator McNutt of

the Federal Security Agency, as Coordinator of Health, Welfare and

Related Activities affecting the National Defense. According to
8 bulletin just issued by the Office of the Coordinator, it

-8-

"proposes to utilize the services of the various
Federal agencies administering aspects of health,

welfare and related activities, so far as these
activities are involved in the objectives of the
national defense program. Where the functions of
these Federal agencies do not at present compre-

hend all the services necessary for defense purposes, they should be expanded 80 that the aggre-

gate functions of these agencies will meet the

defense needs within the public responsibility.".
"The objectives of this coordination are to
derive maximum benefits to the defense program

from the activities of public and private agencies

now operating in the field and to stimulate further
developments where they are necessary to achieve

the following ends:

(a) To afford social protection to individuals
and communities suffering disproportionate economic,

social, or health burdens as a result of military or
industrial defense activity.

(b) To assist civilian agencies and individuals in making an effective contribution to the

282

-9-

283

health, welfare, and morale of men engaged in milltary service.

(c) To promote the health, security and morale

of the civilian population as an essential part of
effective defense.
I have been in touch with the Office of the Coordinator
and have discussed this matter thoroughly with Mr. Charles P.
Taft, who has been appointed Assistant Coordinator in charge of

these health, welfare and recreational activities, and who is
solely responsible for the maintenance of the morale of civilians in the defense industries; and with Colonel L. Kemper
Williams, in charge of Morale in the Adjutant General's Office

of the Army. It is generally agreed that the prevention of
abuse of alcoholic beverages takes an important place among
these objectives.
(6) PROPOSED INTERDEPARTMENTAL ADVISORY COUNCIL.

A primary feature of the Coordinator's plan is
the establishment of an Interdepartmental Advisory Council,
"composed of the heads of all Federal organizations

whose activities relate to these functions. The
Council will (a) advise and confer with the Coordinator on major questions of policy, (b) review
various recommendations of the Advisory Committees,

and (c) assist in the clearance of policy matters

- 10 -

284

and activities which relate to the functions of
the agencies which the Council members direct.'

This Council is obviously open to Treasury participation if we desire it and it might possibly be useful for
either the Chief of the Alcohol Tax Unit or myself to take
a place thereon. I feel sure that Mr. McNutt and Mr. Charles
Taft would welcome our participation if offered.
(7) ADVANTAGE OF UTILIZING EMERGENCY DEFENSE
ORGANIZATIONS.

I am making this suggestion because it appears to
me that this defense mechanism presents the best method of

handling the problem under consideration. The field of
this problem is largely outside of the scope of the normal
functions of the Federal Government. It involves the

mobilization of intelligent public opinion in local units,
in order to force State and local governmental bodies to
use their Police power to prevent abuses.
Furthermore, the program sponsored by the Office
of the Coordinator and by the Joint Army and Navy Committee

on Welfare and Recreation (of which Frederick Osborn is

Chairman) is aimed to provide positive and constructive

means of occupying the leisure time of all individuals
employed in the National Defense as a primary line of
action, using negative and preventive methods only secondarily.

Civilian organizations of all sorts are being mobilized in

- 11 -

285

order to provide healthful and character-building recreation
for defense workers, as well as guarding their health and
working for their economic welfare. This program is well
under way and is very modern and highly admirable in its

conception. There is also much value in the nation-wide
participation which can be gotten in a constructive program

of this sort, in which citizens of many different types can
participate. For instance, the Office of the Coordinator,
the new Morale organizations of the Army and the Navy, and

Treasury officials have all been approached recently by

representatives of the distillers and liquor wholesalers
to find out what the latter can do in a constructive way
to help in a sound National Defense program. These business
men obviously see in such a program of cooperation a way of

forestalling restrictive legislation which might be damaging
to their business.
(8) PREVENTIVE MEASURES THROUGH NEW LEGISLATION.

Already there have been a large number of bills

introduced in the Congress relating to intoxicating liquors.
Senator Sheppard of Texas has introduced two

Joint Resolutions for amendments to the Constitution of the
United States; one to re-enact the Eighteenth Amendment and

the other to give the Congress the power to restrict or
prohibit the manufacture, sale, or transportation of alcoholic
liquors within the United States.

286
- 12 -

The law which was enforced during 1917 and 1918,

forbidding the sale of alcoholic liquors to any man in uniform
has been re-introduced.

Another bill introduced proposes to prohibit the
transportation in interstate commerce of advertisements of

alcoholic beverages. Still another proposes to prohibit the
advertising of alcoholic beverages by radio.

There is also a bill to prohibit the sale, transportati on, or possession of alcoholic beverages in any Army or
Navy camp or within such reasonable distance of such camp

as may be determined by the Secretary of War or the Secretary
of the Navy.

There is also a bill to prohibit the sale, use, or
possession of alcoholic beverages within the District or
Columbia.

As far as I can learn, the National Defense
organizations are unfavorably disposed towards all such

prohibitory legislation.
(9) RECOMMENDATIONS.

1. The work of the Alcohol Tax Unit in
enforcing the occupational (stamp) tax requirement

of the Internal Revenue law as applied to retailers

and in checking the stock-in-trade of retailers to
determine that they carry in stock nothing but taxpaid goods, should be considerably strengthened by

- 13 an addition of personnel. You authorized me to
negotiate with the Work Projects Administration
for the reestablishment of a WPA Project to supplement the work of the Alcohol Tax Unit. I had an
interview with Howard O. Hunter, Commissioner of the

WPA, and discussed this matter with him and Mr. Gill,

his assistant, along the line of the very large number
of law violations which the former WPA Project had
reported and helped to put an end to. He stated
that both the Bureau of the Budget and the Appropriations Committees of the Congress had objected
to the use of WPA workers for law enforcement pur-

poses, and that this had resulted in the discontinuation of the former project on June 30, 1939.
He asked me, however, to lay the matter before him

in writing. I did so, and attach hereto a copy of
my letter and the original of Commissioner Hunter's

reply. In my letter, you will note I stressed the
accomplishment of this project in adding to the
Federal Revenue rather than in enforcing the law.
However, on this basis as well, the Commissioner

states that the project cannot be reinstated.
The records of the Alcohol Tax Unit show that
additional "junior inspectors" employed in enforcing

287

- 14 -

the occupational tax requirements for liquor retailers
are uniformly successful in increasing the revenue in
amounts considerably more than their own salaries
and expenses. At the present moment there would be

very obvious advantages, from the standpoint of
National Defense, in having an alert and adequate
force of junior inspectors on duty in areas where

there are largely increased payrolls in "defense
industries" or where there are new military and
naval establishments, in order to check up on new

retail liquor shops springing up in such areas. I
believe that both of the above arguments - (1) the
net increase of the Federal Revenue which would

result; and (2) the element of added supervision

of the liquor trade in connection with the National
Defense - ought to appeal to the Bureau of the Budget
and to the Appropriations Committee of the Congress.

I, therefore, recommend that this Department apply

immediately for a deficiency appropriation large
enough to finance the salaries and expenses of 200

additional junior inspectors, with the additional
clerical force required.
2. I recommend that the Treasury cooperate

in every way possible with the Office of Coordinator

288

289

- 15 -

and with the Joint Army and Navy Committee on Welfare

and Recreation. The prestige and influence of the
United States Treasury and its vast amount of informa-

tion about the alcoholic beverage trade will undoubtedly
be of great value to the National Defense organizations
in preventing abuses and in developing a constructive
program.

3. I do not recommend that any amending legis-

lation to correct defects of the present Federal
Alcohol Administration Act or other statutes governing the operations of the Treasury in this field (such
as Section 3252 of the I.R.C.) be proposed at this
present moment, because I do not believe that the

Congress would look on such legislation with favor.
However, 1f new abuses should spring up, it is

possible that this situation might change and that
it might become desirable to suggest clarifying amend-

ments to the present laws. I have no suggestions as

to new legislation.
Respectfully submitted,

James James L. f. Houghtel blasted ps).

March 31, 1941.

290

February 26, 1941.

Non. Neward 0. Hunter,
Acting Commissioner,
Waska Projects Administration,
1734 New York Avenue,

Washington, D. c.

My dear Mr. Hanter:

The Secretary of the Treasury has asked me to take

up with you the possibility and desirability of reestablishing a WPA project wholesan the Alcohol Tax
Unit of the Bureau of Internal Revenue was for four

years greatly assisted by the cooperation of your
organisation. This was known as the Retail Liquor
Dealers Inspection Project.

The repeal of the Prohibition Amendment an December

1933 resulted in the establishment of a large group of

new taxpayers, namely, retail liquor dealers in distilled
spirits, wines and fermented malt liquors dispensed in
saloons, taverns, hotels, restaurants, clubs, grocery
stores and road side places. To collect this revenue
and, by properly overseeing the operations of these
retail dealers. to determine that they were not dealing
in goods on which other Internal Revenue taxes were paid, placed a burden on the Alcohol Tax Unit, which

it was not properly staffed to handle effectively.

Consequently, on September 3. 1935, the Retail Liquor
Dealors Inspection program of the Alcohol Tax Unit,
financed from funds allotted by the Works Progress

Administration, was inaugurated in 91 project cities
having a population in excess of 100,000 each. This
progres was later extended to cover 118 project cities.

The force of WPA were supplemented by a number

of regular inspectors of the Alcohol Tax Unit.

Non. Noward O. Master

291
#2.

The record of this program appears to have been as follows:
Average Number

Fiscal Year
or WPA workers
Ended June 30 Employed
1936 V
1937
1938
1939

700
786
309

in

Number of
InspeeMasa Made
470,432
460,828
243,577

158,918

Addition to

Revenue

$979,250.74
724,513.64
370,336.41
232,377.46

1 Projects started September 3. 1935.
Quota of inspectors.

During the fiscal year ending June 30, 1939, the average
215 inspectors and 55 elerks and the number of project cities
involved had been reduced to 57. As of the afterementioned
date, however, this work was entirely discontinued.
number of WPA project workers involved appears to have been

The records of the Alcohol Tax Unit for the fiscal year
1940 (after the discontinuation of this WPA project) show
that the 177 junior inspectors allowed to the Unit by the
current appropriation of the Congress were only able to make
284,661 inspections as applied to an estimated 400,000 retail
liquor dealers in this country. Numerically, this represents
an inspection of approximately 70% of the retail establish-

ments but, in view of the fast that a number of difficult
situations required repeated visits by Junior inspectors, 11
is obvious that considerably less than 70% of the retail
establishments is the country were actually visited during
the year. Even to cover that proportion of the inspection
work required, each junior inspector had to visit 1,600
establishments during the year or 5-5/7 per day in a 280

day year.

The nowly arison problems of National Defense are closely
connected with this problem. The Alcohol Tax Unit and the
Federal Alcohol Administration, which is now associated with
it in the Dureau of Internal Revenue, represent the only
leverage of the Federal Government in as effort which should
be made, in cooperation with the State authorities of the

various States, to prevent abuses of the liquor trade from

interfering with the defense efforts of this country. It is

important that those engaged in the liquor trade should know
that the Federal tax laws and the Federal laws governing the

292
Non. Reward O. Sunter - - #3.

distribution of liquor in interestate commerce are being
adequately enforced. We believe that VPA projects
advantageously be not up in a considerable number of could when

areas containing defense industries or military esape for
the purpose of handling this problem is conjunction with

thorities. the Alcohol Tax Unit and proper State and sunicipal an-

Under the circumstances, we hope that you aay find it
consistent with your program to resetablish e number of

these30,projects
June
1939. along the line they were operated prior to
Yours sincerely,
James L. Houghteling,

Assistant to the Secretary.
JLBijh

293
FEDERAL WORKS AGENCY
WORK PROJECTS ADMINISTRATION
1734 NEW YORK AVENUE. NW
WASHINGTON D.C.
HOWARD O. HUNTER
COMMISSIONER OF WORK PROJECTS

The Honorable

MAR 1941

The Secretary of the Treasury

Attention: Mr. James L. Houghteling
Assistant to the Secretary
My dear Mr. Secretary:

Receipt is acknowledged of Mr. Houghteling's letter
dated February 26, 1941, concerning the possibility and desira-

bility of re-establishing the Retail Liquor Dealers Inspection
Project for the benefit of the Alcohol Tax Unit of the Bureau
of Internal Revenue in your Department.

As your office states, the Retail Liquor Dealers
Inspection Projects were operated from September 3, 1935, through

June 30, 1939, and were discontinued at the request of this
office. The Commissioner of Work Projects in letter addressed
to Mr. Harold N. Graves, Acting Commissioner of Internal Revenue,
dated July 1, 1939, stated as follows in respect to the projects
in question:

"It is my present opinion that certain aspects
of this program render it inadvisable to continue it in operation during the coming fiscal
year.

"It has been our policy that municipalities or
other local taxing jurisdictions should not
operate projects which are directly related to
tax collections or inspections for purposes of
collection. This policy is based on the principle that tax collections and operations
incidental thereto are provided for by the
regular budgets of the governmental unit.

"Even in the case of projects bearing only an

indirect relation to tax collection, approval

has been granted only on a demonstration basis

to test the worthwhileness of the work, and

294
The Honorable

The Secretary of the Treasury -2MAR 6 1941

usually lasted not more than one year. In
the case of the program of projects carried

on by the Bureau of Internal Revenue from 1935
to date, I have been informed the amount of
revenue eventually collected will be in excess

of the total costs of the projects, so that

the principle may be said to have had at least

a reasonably thorough demonstration."

Your letter dated July 6, 1939, requested reconsideration
of
the
request.
The Commissioner's reply dated July 11, 1939,
stated as follows:
"While I appreciate your desire to continue
in operation projects which provide for a

tangible return in relationship to the funds
expended thereon, I do not feel that I can

approve their continuance inasmuch as the

operations thereunder are contrary to the
policy which has been established with respect
to the operation of locally sponsored State
Program projects."
The above-stated policy of this Administration has not
been changed since the date of the two letters referred to above.
Even though the above policy did not prevent the possible approval
of the projects, the decreased limitation on Federal agency funds
would doubtless prevent an allocation for this purpose.
Sincerely yours,

Hunter
Acting Commissioner

295
for

The Secretary

From James L. Houghteling

Under your instructions I have been making a study of

the problem of alcoholic beverages and their relation to the
National Defense situation, with a view to the prevention of
abuses which may retard and hamper the National Defense.

The primary object of my investigation has been to determine
how the Treasury Department GAR best use its considerable
regulatory powers to that and

with the cooperation of Stewart Berkshire, head of the
Alcohol Tax Unit, and members of his staff, I have studied
the operations of that organization and gome through the files
of a number of specific cases. I have read the statutes and

regulations pertaining to the work of the Unit itself and of
the Federal Alcohol Maintstration. I have contacted other
agencies of the Federal Government handling National Defence

problems to learn what steps they plan to take in this matter.
This part of w Investigation has necessarily been clow
because these other Federal agencies - the War Department, the

Navy Department and the Federal Security Administration - are

exploring fields of activity which are new to them. They are
making remarkably good progress (as I shall explain later in
this report), but the problem of preventing the abuse of

alcoholic beverages is only a small item in their program of

296
protecting the health and morals of National Defense wite
(industrial as well as military) and 10 has therefore not

been - of the first problem to be Sakam - by -

(1) FEDERAL

the intustry of mainfacturing and rectifying
alcoholic beverages and of their sholesale distribution se
the most thoroughly regulates and carefully supervised of

all the industries in the United States, according to expert
observere. As far as the Federal Government is consurance,

this regulation and supervision to twofolds
(a) The Treasury Department, through the
Alechel Tax Unit of the Bareau of Internal Rever

- very thoroughly spervises all the stope
of distilling, rectifying, browing and wine facturing in order se determine, for taxation
purposes, the exact alcoholic content of all
beverages manfactured. This is (encept is the
ease of boar) the basis - which as assesses and
collects tames. IS alse exercises widespread
police powers to prevent the evasion of this

supervision - tonation.
(b) As a result of the repeal of the Prehibition Amendment and of consumers public for a further degree of supervision over the
nowly Legalized alcohol industry, the Gongress
passed the Federal Alechal Administration not

297

making the Federal Treasury responsible for the

mistendise of fair train practices in the 1
eastry and for the enforcement of the Twentyfirst Amendment.

Time the Treasury Department has I placed in a peelsion to supervise and regulate the manufacture and shalesole

distribution of alcoholic boverages to a degree far emooding

the Federal regulations of - other industry and this supervision 10 effectively enferces. In general, the month of the
industry regard this supervision as a protection and a stabilising influence and a great deal of Intent good will - to
exist between the Government and the manfacturers and wholesaless.

(a) LIMITATIONS og

However, there is a Chinese will which coparates

Federal supervision from the retail liquer trade. I have read

carefully the in the Congress which presented the
emotamin of the Federal Alechal Administration Ast in 1000.

It was obviously the sense of the Congress that the liques

traffic should be controlled, as far as was constitutionally
possible, in order to aveid the abuses which had grow - nofore and during Prohibition. In general, - leadore of the

298.

Congress applied themselves with a good deal of cimmunity

and intelligence to the drafting of as practical a please of
legislation as possible. But as was quite obvious that they

all felt that they could not emotitutionally touch the retail
liquer trade. A great deal of verbiage in the Federal Alechet
Administration Act which valoos serious difficulties from an
enforcement stampoint was loft that way consciously in order

to inficate that the sole purposes of the law were to regulate

interstate - and to prevent monopaly and unfair nostruint of trade. Sony objectionable practices were that
put practically Bayond the reach of the law. This act use
passed shortly after the Supreme Court of the United States,
in its decision of the Schoolder ease, had declared the

National Intestrial Recovery Act - the
efforts of Congress were obviously directed Soward the draft-

ing of law which would not to knocked out in the - way.
(IS my be noted that various decisions of the Supreme Court
since that time have sended to breaden the powers of Congress

to regulate interetate commerce, and as is likely that in
the light of exhanquent desisions the Federal Alcohol Administration Act could today be amended so as to eliminate a certain

number of its I will refer to this point again
later.)
In general the retailer of alcoholic beverages is completely independent of the Federal Government, except that:

--

299

(a) he must pay an occupational stamp w required by Section 3250 of the Internal Revenue
Code.

(b) he must handle only such alcoholic beverages as bear revenue stampe identifying them as
taxpaid; and

(o) he must maintain at his place of business

a record of all the distilled spirits, wines and
fermented malt liquors received, the quantity
thereof, and from whom and the date when received,

and must make such records available to the inspec-

tion of Government officials. (Section 3252 of the
I.R.C.).
(3) EXTENT
TO WHICH FEDERAL SUPERVISION OF THE RETAILER
GA

It seems evident that the intention of the Congress
in enacting Section 3252 of the I.R.C. was to protest the reveaue by providing that Federal officials should check the retailere' records of purchases against the wholesalere' records
of sales. This, however, has never been done, because the personnel of the Alcohol Tax Unit has never been large enough to
undertake such an extensive job of checking. Section 3252

permite the retailer to keep these records in the form of

original invoices or bills if he likes. Officials of the
Alcohol Tax Unit states that the records of some 400,000

individual members of the retail liquor trade, many of them

..-

300

operators of small and powelly managed establishments, are is

general kept so skitchily that the Job of checking them would
be tremondous and that the information gained would not be worth

the great effort involved. X believe that this is correct.
This section of the law could be greatly improved w amendment,
but I question whother 100 objective, even if made more easily

attainable in that my, would be worth the large additional
expense, or whether the Gongress would be willing to appropriate

funds for the additional personnel required.
In this commetion, 18 should be noted that the Alcohol
Tax Unis, in its more fundamental work of enforcing the GOOM-

pational tax law - retailers and checking their stock-in-trade
for non-taxpaid goods, is confronted with the task of inspecting
400,000 retail establishments selling alcoholic beverages with

a force of only 199 "juntor inspectors." Each one of these offlears meet thus inspect appreximately 2,240 retail promises
per year OF an average of a per day in a 280-day year. Obviously,

such a schedule is impossible of fulfilment. The report of the
Secretary of the Treasury show that in the fiscal year 1940
the A.T.U. made only 264,081 mach inspections (representing

5-5/7 visits per Junior inspector per day in a 280-day year)

and, in view of the argent need of follow-up visits in flagrant
cases, 18 seens withely that more than 60% of the retail
liquor dealers in the country were visited even once during
the fiscal year. Even this represents such a heavy schedule

for Junior inspectors that really effective work cannot be

301

come. In the fiscal years from 1988 to 1930, this impostion ins
partly carried - w WPA water (who in their biggest year, 1989,
made 480,898 individual inspections); but since July 1, 1939, WA
cooperation has been terminates AS your suggestion I have write
to have this WPA project scinstated. I attach hereto - exchange
of letters with Neward 0. Mater, Administrator of the WTA,

embodying the / outsome of - effort. Under treeca
mendations* in a Inter part of this report, X will discuss this
matter further,

This checking of stamp tax payments and of the retailer's

stock-in-trade to - that as is all taxpaid, represents the
only contact of the Federal Government with the retailer. His
business is entirely intrastate and homes the regulation thereof.
lies entirely within the Police Power of the individual States.
(5)

REVERAES AS AS NEASURE or

The emergency of the National Defense opena a new 11ml

of cooperation between the Federal, State and local governments
in many fields heretofore closed to the Federal Government.

As a function of the work of the National Defence Advisory
Comicsion, the President has appointed Maintstrator Mathies of
the Federal Security Agency. as Coordinator of Health, Welfare and

Related Activities affecting the National Defense. According so

a bulletta just is by the Office of the Coordinator, st

302

*proposes to utilise the services of the various
Federal agencies administering aspects of health,

welfare and related activities, so far as these
activities are involved in the objectives of the
national defense program. Where the functions of
these Federal agencies do not at present compre-

hand all the services assessary for defense punposes, they should be expanded so that the aggregate functions of these agencies will meet the

defense needs within the public responsibility."
"The objectives of this coordination are to
derive maximum benefits to the defense program

from the activities of public and private agencies
now operating in the field and to stimulate further
developments where they are accessary to achieve

the following ends:

(a) To afford social protection to individuals
and communities suffering disproportionate economic,

social, or health burdens as a result of military OF
industrial defense activity.

(b) To assist civilian agencies and individuals in making an effective contribution to the

.

303

health, welfare, and morale of - engaged in mill.
tary service.
(e) to promote the health, occurity and marale

of the civilian population as on essential part of
effective defence."
I have been in touch with the Office of the Coordinator
and have discussed this matter thoroughly with Mr. Charles P.

Taft, who has been appliated Assistant Coordinator in charge of
those health, welfare and recreational activities, and who is

solely responsible for the mistenance of the morale of civilians in the defense industries; and with Colonel L. Kemper

Williams, in charge of Merelo in the Adjusant General's Office

of the Army. It 10 generally
abuse of alcoholic beverages takes an important place among
those objectives.
(6) PROPOSED INTERNATIONAL ADVISORY COUNCIL.

A primary feature of the Coordinator's plan is
the establishment of as Interdepartmental Advisory Council,
composed of the heads of all Federal organisations
whose activities relate to these functions. The

Council will (a) advise and confer with the a
ordinator on sajer questions of policy, (b) review
various recommendations of the Advisery Committees,

and (a) assist in the clearance of policy matters

- 10 -

304

and activities which relate to the functions of
the agencies which the Council members direct."

this Council is obviously open to Treasury partialpation 1f we desire 18 and 18 might possibly be useful for
either the Chief of the Alcohol Tax Unit or ayself to take
a place thereon. I feel sure that Mr. Hollust and Mr. Charles
Taft would welcome our participation if offered.
(7) ADVANTAGE OF UTILIZING EMERGENCY DEFERSE

I as making this suggestion because it appears to
me that this defense mechanism presents the best method of

handling the problem under consideration. The field of
this problem is largely outside of the scope of the normal
functions of the Federal Government. It involves the

mobilisation of intelligent public opinion in local units,
in order to force State and local governmental bodies to
use their Police power to prevent abuses.
Furthermore, the program sponsored by the Office
of the Coordinator and by the Joint Aray and Navy Committee
on Welfare and Recreation (of which Frederick Osbern is

Chairman) is aimed to provide positive and constructive

means of cooupying the leisure time of all individuals
employed in the National Defense as a primary line of
action, using negative and preventive methods only secondarily.

Civilian organizations of all sorts are being webshised is

- 11 -

305

order to provide healthful and character-building recreation
for defense workers, as well as guarding their health and
working for their economic welfare. This program is well
under way and is very modern and highly admirable is its
conception. There is also such value in the nation-wide
participation which ean be gotten in a constructive program

of this sert, in which citizens of many different types ean
participate. For instance, the Office of the Coordinator,
the new Herale organisations of the Aray and the Havy, and
Treasury officials have all been approached recently by

representatives of the distillers and liquor wholesalers
to find out what the latter can do in a constructive way
to help in a sound National Defense program. These business
mon obviously see in such a program of cooperation a way of

forestalling restrictive legislation which sight be damaging
to their business.
(8) PREVENTIVE MEASURES THROUGH NEW LEGISLATION.

Already there have been a large number of bills

introduced in the Congress relating to intoxicating ligeors.
Senator Sheppard of Texas has introduced two

Joint Resolutions for ameniments to the Constitution of the
United States; one to re-easet the Eighteenth Amontment and

the other to give the Congress the power to restrict OF
prohibit the manufacture, sale, OF transportation of alcoholic

liquore within the United States.

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18 -

The law which was enforced during 1917 and 1918,

forbidding the sale of alcoholic liquare to any - is uniters

has been re-introduced.

Another bill introduced proposes to probibits the

transportation in interstate - of advertisements of
alcoholic beverages. still another proposes to prohibit the
advertising of alcoholic beverages by redie.

There is also a bill to prohibit the sale, trans.
portation, or possession of alecholic beverages in any Army or
within such reasonable distance of such camp
as may be determined by the Secretary of War OF the Secretary
of the Navy.

There is also a bill to prehibit the sale, use, OF
possession of alcoholic beverages within the District or
Columbia.

As for as I can learn, the National Defence
organisations are unfavorably dispeced towards all such

prohibitory legicletion.
(9)

1. The work of the Alcohol Tax Unit in
enforcing the compational (stamp) tax requirement
of the Internal Revenue law as applied to retailers

and in checking the steek-in-trade of retailers to
determine that they earry in stock nothing but taxpaid goods, should be considerably strengthened by

- 13 as addition of personnel. You authorised me to
negotiate with the Work Projects Administration
for the reestablishment of a WPA Project to supplement the work of the Alcohol Tax Unit. I had an
interview with Howard O. Hunter, Commissioner of the

WPA, and discussed this matter with him and Mr. Gill,

his assistant, along the line of the very large number
of law violations which the former WPA Project had
reported and helped to put an end to. He stated
that both the Bureau of the Budget and the Approprintions Committees of the Congress had objected
to the use of WPA workers for law enforcement pur-

poses, and that this had resulted in the discontinuation of the former project on June 30, 1939.
He asked me, however, to lay the matter before him

in writing. I did so, and attach hereto a copy of
my letter and the original of Commissioner Hunter's

reply. In my letter, you will note I stressed the
accomplishment of this project in adding to the
Federal Revenue rather than in enforcing the law.
However, on this basis as well, the Commissioner

states that the project cannot be reinstated.
THE records of the Alcohol Tax Unit show that
additional "junior inspectors' employed in enforcing

307

- 14 -

308

the occupational tax requirements for liquor retailers
are uniformly successful in increasing the revenue in
amounts considerably more than their our salaries
and expenses. At the present moment there would be
very obvious advantages, from the standpoint of

National Defence, in having an alert and adjunts
force of junior inspectors on duty in areas where
there are largely increased payrolls in defense
industries* or share there are new military and
navel establishments, in order to check w on new

retail liquer shope springing up in such areas. I
believe that both of the above arguments - (1) the
not increase of the Federal Revenue which would

results and (2) the element of added supervision

of the liquor trade is connection with the National
Defense - ought to appeal to the Suream of the Budget
and to the Appropriations Committee of the Congress.
X, therefore, recommend that this Department apply

Immidiately for a deficiency appropriation large
enough to finance the salaries and expenses of 200

additional junior inspectors, with the additional
clorical force required.
2. X recommend that the Treasury cooperate

in every may possible with the Office of Goordinator

309

- 18 .
and with the Joint Away and Bavy Commisses on Velfure

and Recreation. The prestige and influence of the
United States Treasury and its vast amount of inform
sion about the alcoholic beverage trade will undoubtedly
be of great value to the National Defense organisations
in preventing abuses and in developing a constructive
program.

8. I do not recommend that any amending legio
Intion so correct defects of the present Federal

Alcohol Administration Act or other statutes governing the operations of the Treasury in this field (ouch

as section - of the I.R.O.) be proposed at this
present moment, because I do not believe that the
Congress would lock on such legislation with favor.

Neverer, if new abuses should spring w. is is
possible that this situation might change and that

18 night become desirable to suggest chartering /
mate to the present laws. I have no suggestions as

to now logislation
Respectfully submitted,

James f. dayleet

(State L. Houghtoling).
March 31, 1941.

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CONFIDENTIAL

MILITARY INTELLIGENCE DIVISION
WAR DEPARTMENT

SUPPLEMENT TO

AIR BULLETIN
No. 19

Washington, April 29, 1941

0-2/183-314

NOTICE

The information contained in this series of bulle-

tins will be restricted to items from official sources

which are reasonably confirmed.

This document is being given an approved distribution and no additional copies are available in the

Military Intelligence Division. For provisions governing its reproduction see Letter TAG 350.05 (9-19-40)

M-B-M.

TACTICAL AND TECHNICAL TRENDS
FEBRUARY 16 - MARCH 15. 1941
INCLUSIVE

CONTENTS

1.

GREAT BRITAIN
a.

Fighter Tactics Against Offensive Patrols

b.

Fighter Tactics Against Escorted Bombers

d.

Army Cooperation
Air Reconnaissance

e.

The Stirling Bomber

C.

f.
3.

h.

i.
J.
K.

1.

Fighter Aircraft
R.A.F. Service Units in the Middle East
Canouflage of Airdrome Runways

Instrument Flying

Zones of Attack on Bombers
The 20-mm. Gun Turret
Operating Radius

2. GERMANY
a.

b.

Fighter Tactics
Escort Tactics
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CONTENTS

(concluded)

2. GERMANY (continued)
C.

d.
e.

Bomber Tactics
Dive Bombing Attacks on Surface Vessels

Antiaircraft Defense Against Night Bombers
f. Gliders
3. FRANCE

Air
Strength of Forces on the Western Front, May 10,
1940.

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TACTICAL AND TECHNICAL TRENDS
FEBRUARY 16 - MARCH 15. 1941
INCLUSIVE
1.

GREAT BRITAIN

a. Fighter Tactics Against Offensive Patrols
If the British fighter squadron is fortunate enough
to be at an equal or superior height, the planes of the squadron
formation attack simultaneously and then proceed with pair or section
attacks. Otherwise leader keeps his formation on the defensive until
he gets a good opportunity to attack.
When a fighter unit is attacking enemy fighters,

pairs or sections of three airplanes each are led into the attack
together. Such attacks usually end up in dog fights, but if possible
the section formation should be loosely maintained so as to afford
mutual support and to facilitate reforming the unit after combat.

When a pilot is in a dog fight or separate from his

unit, he never flies straight, but continually turns from side to

side 80 that he can keep a lookout behind him. When attacking, he
makes all use of sun and cloud and remembers the slogan, "Beware
of the Hun in the Sun."

When closing in on a bomber, the fighter opens fire
with a short burst at about 300 yards, since the rear gunner is

often killed or at least frightened; then it goes right in.

The breakaway is most important, since it is at this
point that the pilot is most vulnerable, especially from the rear
gunner. If the breakaway is made in a climbing turn, the fighter
may give the rear gunner a nearly stationary shot. When possible,
a turning dive is the best method to be used.
The aim of the air fighter is to destroy the maximum
number of enemy aircraft in the minimum time with the minimum use of
ammunition.

b. Fighter Tactics Against Escorted Bombers

The fighter's job is principally to destroy enemy

bombers or to escort its own bombers, and destruction of enemy
fighters is only a means to these ends. Bombers not only are much

more expensive and difficult to produce than fighters, but they also
carry crews of four or five and do damage to ground objectives.
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Enemy escort fighters may be at such a height above
their bombers that an attack and breakaway can be made before the
escort fighters can catch up and attack. A group of three squadrons
is ordinarily used; the lower squadron attacks bombers and the
upper squadrons attack and keep off enemy fighters.

If there is no escort squadron available, the formation leader leaves a section well above the rest to look after
their tails while they malte the attack. Weavers are very necessary;

they are experienced pilots who normally fly above the formation,
but they must never lag behind.
When enemy bombers are approached, every effort is

made to achieve surprise. If this is successful, it may be possible

to attack without interference. Where possible, head-on and beam
attacks should be used against bombers.
If a pair or section attacks a single enemy bomber,
similtaneous attacks are made from either flank, and also from

underneath if a third airplane is available. This is preferable
to shooting in turn. A surprise attack on enemy bombers nearly
always breaks up the formation and generally disorganizes its
escort fighters.
C. Army Cooperation

Two cooperation squadrons under the control of the
army through the liaison section of the Royal Air Force were used
during the advance of the army in Libyan operations. One Australian
squadron was to be used for dive bombing in close support of troops,
but this was not found effective. The Australian squadron was

later used as fighter protection for the other squadron, which was
doing observation work. The second squadron, using Hurricanes, did
reconnaissance work to supplement that done by long-range bombers.
One specially equipped Hurricane did considerable

photographic work in the mapping of defenses. One flight of a
squadron equipped with Lysanders did some artillery spotting for
long-range guns and performed duty on command missions and in

transporting staff officers. Fighter-type aircraft, with pilots

observing, are used for close and medium reconnaissance, but the
British feel that such planes as the Martin 167 and Douglas A-20
would be preferred for these missions, as well as for photography
and command missions.

d. Air Reconnaissance

Land planes and flying boats are used for long-range
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reconnaissance, but amphibians have not been used on either side.
All bombers are fitted for cameras, all can do reconnaissance, and
all have provisions for maximum alternate loads of bombs or gasoline.
If the mission is long, bomb bay tanks are used with bombs to make
up the permissible load. Planes are usually overloaded, however,
since excess bombs and ammunition are taken along. All planes
on normal coastal reconnaissance missions are prepared to drop
bombs or depth charges, as the mission may require.
On completion of a bombardment or reconnaissance

mission, pilot and crew make a written report on Form "X" to the
intelligence officer, who prepares a consolidated report.
e. The Stirling Bomber
A number of American official observers in London

recently made a flight in a Stirling Bonber and reported that the
plane handled very well in the air. It has a 30-second take-off
without load and with 1/3 flaps - that is, with normal flap position
for take-off. The airplane lands at 95 to 100 mph with the wheels
down, and at about 85 mph with wheels up.

The large landing gear rises very slowly and is quite
a hindrance to getting under way. There has been some difficulty
in lowering this gear; it winds on an endless screw and the solenoid

fails to break, so that the gear jams itself into the top of the wing
it.

and becomes so tightly lodged that the hand release fails to dislodge
This high landing gear was used because specifications

called for a tunnel turret which could be fully extended while the

ship was being landed. The designers, somewhat baffled, ended by
producing the Stirling Bomber, which the American observers considered

an atrocity. It would be a beautiful airplane, they reported, if

it were not for the lack of coordination between the designers and
those who drew up the specifications.

The hydraulic throttles are a source of trouble in
that equipment is not strong enough. There is no bar across the
throttle controls to enable simultaneous opening of all throttles,
and the take-off is accomplished by pushing three throttles full
out and then opening the fourth. As a matter of fact, this does
take care of a certain amount of inherent take-off yaw.

f. Fighter Aircraft
(1) Night Fighters
The general British consensus is that the night
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fighter should have mainly the characteristics of the day fighter,
except for that of maneuverability, which is not especially important.
It will probably be a two-motored airplane in order that it may
have speed, clinb, and ceiling. There will probably be three men
in the crew - one pilot, who will have all he can do to operate and
navigate the plane; one radio operator, who will also operate the
aircraft's interceptor radio; and one gunner, who can keep his
vision accustomed to darkness without any interruption, to do
the shooting.

(2) Interceptor Fighters

.

Generally speaking, the British believe that the
fast interceptor fighter which now has good ceiling, speed, climb,
and maneuverability, should also have some large and some medium

selective armanent. It should also be well armored.
(3) Convoy and Patrol Fighters

A fast long-range convoy and patrol fighter
should be heavily armed and armored and have at least a 1,000 mile
radius of action, according to the British. Some compromise would
necessarily have to be made on maneuverability and ceiling, since

the wing loading of the fighter would be high. Officers say that
this type of fighter is a definite necessity at the moment if they

are to get out and intercept the German long-range Focke Vulf
bomber that has been sinking British shipping some 500 miles at sea.
The British are rapidly coming to a decision
that a fighter squadron cannot be trained for efficient day and

night fighting - first, because there must be a special multiplace
aircraft for night fighting, and second, because the tactics and
technique of night and day fighting greatly differ.
British squadron leaders state that in wartime
a 50% reserve in squadron aircraft is inadequate to keep the
required number of operational planes in commission. They believe
that in order to fly twelve airplanes, they should have twenty or
twenty-two planes assigned to the squadron.
The British say that gun cameras in fighter

aircraft are a definite necessity, both for training and analyzing
tactical results in actual combat.
6. R.A.F. Service Units in the Middle East

The following service units, all different in

organization and strength, are included in the R.A.F. in the
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Middle East:

2 Air Transport Units
2 Transport Units

1 Marine Section

25 Air Base Stations
4 Supply Columns

5 Medical Units

5 Port Detachments
4 Maintenance Units

8 Air Stores
3 Repair and Salvage Units
8 Staging Posts

The Army furnishes, in addition, all ground defenses,
rations, and water; carries on all engineering functions in forward
areas; provides all wire lines to forward areas, and transports
fuel and bombs to them.

h. Camouflage of Airdrome Runways
In order to camouflage concrete and macadam runways,

it is necessary to break up any paint which has been applied.
At first crushed granite was spread on the surfaces, along with a
tar-type adhesive, but this was found to cause excessive wear to
the tires of airplanes. Colored paint wore off very quickly.
The use of ground rubber has been found very satis-

factory. Salvaged rubber, mainly from automobile tires, is applied
in the same manner as crushed granite. There is very little loss
of paint and practically no wear on airplane tires and rubber
surfaced runways practically eliminate "ground looping" tendencies

in any type of aircraft.

The rubber surface seems to stay very well, and

particles do not roll off over the tires of landing aircraft. It

is also very cheap and easy to maintain, since loosened rubber can
be swept off and used again.

1. Instrument Flying
It has been reported orally in the United States that
British fighters are taking off at night "on instrument." An American
observer, who discussed this matter with officers from the Commanderin-Chief of the Fighter Command down to and including junior pilots

at four different stations, was unable to establish a single instance
of instrument take-off and was forced to conclude that fighter pilots
are neither taking off nor landing "on instruments."
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Fighter pilots do, however, ascend and descend through

the
overcast
instrument,
and, as necessity arises, they fly through
areas
of lowby
visibility
"on instruments.
j. Zones of Attack on Bombers
The
most likely zones from which a bomber would be
attacked are as
follows:

(1) By a single-engined, single-seated fighter with

conventional guns - from the 30-degree rear cone.

(2) By a single-engined, single-seated, or multiengined single-seated plane with large caliber guns - from the 30degree rear cone.

(3) By a multi-place fighter equipped with turret -

from any angle; probably a wide deflection attack from either beam
and from below to keep the target eilhouetted against the sky as
well as to keep in the blind angle found under the wing tip of
most airplanes.

k. The 20-mm Gun Turret
At present the British are spending so much time on
the development of the 50-caliber machine gun turret that work on

the 20-mm. gun turret has almost stopped. It is low on the priority
list.
1. Operating Radius
The operating radius of an airplane during wartime
is considered by the British to be about 40% of the cruising range.
2. GERMANY

a. Fighter Tactics
In the Me-109, maneuverability has been sacrificed
for speed. The tactics described here have been used invariably
against Hurricanes and Spitfires.

Upon being sighted by British fighters, Me-109's

usually go into a defensive circle, flying wide in line astern.
This formation, called the "circle of death," is the same as the

American Lufberry circle.

Between 30 and 50 Me-109's are often found in scattered
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loose formations at between 25,000 and 35,000 feet, flying parallel

to the British coast about ten miles out to sea. They try to

persuade British fighters to go out to them, sometimes by simulating
a dog fight, 80 that other Me-109's waiting in the sun can come
down to attack.

German fighters never attack from equal height. They

retire in order to gain height and then return at a much greater
altitude. Their usual form of attack is to send their main body
of fighters over the top of British fighters and leave a section

or flight in the sun to attack. It is difficult not to be surprised

by this form of attack. The attacking section usually dives down
on the British fighters and then climbs to rejoin the main formation.
The British feel that, generally speaking, German fighters could
attack much more effectively than they do with their advantage in
height and numbers, but they seem to lack determination and the all-

essential offensive spirit.

When individually pursued, the German fighter half

rolls and dives to the ground, descending almost vertically. He
pulls out of the dive as sharply as possible in the hope that the
attacking airplane will fail to follow him; then he climbs almost

vertically. After the climb, he invariably carries out a power
controlled stall turn to the left.

The speeds in the dive are greatly in excess of 400
mph and because of the difficulty of maintaining an accurate sight

at this speed, it is advisable to refrain from firing unless the

plane is in an extremely favorable position.

The speed at the top of the climb, just before the
stall turn is greatly reduced - it is about 160 to 180 mph. The
Hurricane is able to close to effective range, and it has been
found that this affords the opportunity for a good burst of fire.
If this burst is unsuccessful, the lie-109 either repeats the whole

maneuver - that is, it dives, climbs, and stall turns - or it merely
pulls out of the dive at low height - usually 100 to 200 feet - and
makes off as rapidly as possible. In the retreat, the pilot may
or may not swerve in an effort to evade.
Sometimes lie-109 pilots attempt to confuse 3ritish
fighters by causing extreme richness in fuel mixture, with the
result that black smoke is e jected from the exhaust ports, as in

a crippled engine. British pilots are warned not to be led astray
by such tactics. Black smoke created in this maneuver will flow
over the wings. If the engine has really been hit, the black smoke
will be intermingled with white, and in most cases the engine bursts
into flames.

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b. Secort Tactica
The Germans at first used bomber formations unescorted

by fighters, but when this proved costly, a small fighter escort

in close protection was employed. As bomber casualties continued

to be very high, they started to use a very high umbrella fighter
screen with a large proportion of fighters to bombers. Normally,

bombers come over in a large Vee formation between 15,000 and 20,000

feet, with the escort at between 25,000 and 35,000 feet.

The manner in which escorts have been employed has

shown an almost constant variation. The following shows roughly
the sequence in which tactics have developed:

(1) High escorts, frequently in two layers about

5,000 and 1,000 feet, respectively, above bombers. The top layer
vas at first taken by Me-110's, but this has been reversed and the
lie-109's are now always in the top layer. The change may have been
due to the progressively increased heights at which these escorts
flew.

(2) After the first few days of heavy attacks on

England, escort was brought down to the level of bombers, flying
first immediately above and astern of them, and then virtually
surrounding them, with fighters above, below and to each flank. In
some cases the high escort was continued, but it became less frequent probably because it was difficult to maintain contact with the bomber
formation - and its place was taken by a "diversion escort." The
Me-109 has had difficulty in escorting the He-111, except on the
shortest missions, on account of the relatively slow speed at which
this bomber flies and the time involved in completing missions. At
one time relief escorts were sent to take over escort duty on the
return journey. This was not very successful, because either the
relief never found the bombers, or it became involved in a fight
and was not available to protect bombers.

(3) It is now known that many fighter pilots who
stated they were on "free hunt" were in fact carrying out a from of
escort duty. They were the "diversion escort," divided into the
following classes:
(a) Vanguard - These airplanes crossed the coast
10 to 20 minutes before the main attack. There were generally two
or more formations of 10 to 15 airplanes, whose object was to draw
the enemy's fighters from the track which the bombers were to follow
and to confuse the reporting system.

(b) Rear Guard - These airplanes, generally in
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stronger formations than the vanguard, crossed the coast just
before the bombers were due to return, with the object of covering
the bombers' retreat and preventing their being chased out to sea
by fighters. Formations were generally at 20,000 to 30,000 feet.
C. Bomber Tactics

Large bomber formations do not usually adopt evasive

tactics, but rely for their protection against fighters on fighter

escort and close formation flying for autual fire support. Fine

weather is essential for operating MASS formations; cloud cover
cannot be used.

When smaller bomber formations have been encountered

by fighters, or when the large formations have been broken up, the
bombers, either individually or in sections, have adopted one of
the following evasive plans:
(1) They have sought the nearest cloud cover.
(2) They have descended to ground or sea level at
high speed and made a full-throttle, low get-away, accompanied by

'jinking.'

(3) They have used diving brakes, when fitted, to
execute steep dives combined with turns, thus causing attacking
fighters to overshoot.
(4) They have simulated damage by emitting smoke

from an apparatus fitted either in the tail or behind the engine
nacelles.

d. Dive Bombing Attacks on Surface Vessels
Under ideal conditions, the German dive bomber pilot

likes to start the attack at 12,000 feet, pulling out at 4,000 feet.
The angle of dive is about 45 degrees at a speed of about 370 mph.
Bombs are dropped with instantaneous fuse setting. The "Revi" bomb
sight, used during dive attacks, seemed to do away with the necessity
for aiming off the target by so many degrees on the graticule. Under
the newer system, it is possible to make adjustment to the screen to

allow for the speed of the ship. etc. Thus the image of the ship
can be held on the cross wires of the graticule during the attack.
Light antiaircraft fire from ships has been found

extremely accurate when the plane is at a height lower than 4,000
feet. This is the main reason for not dropping bombs from a lower
altitude.
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Cannon attacks are carried out from as low an altitude as possible and from the beem in the hope of getting hits
near the water line. The procedure in attacks on shipping is
standardized and adhered to fairly rigidly.
The Thanes Estuary is considered a very suitable

place for attacks on shipping because it is thought that ships
have to keep to the open water line through the mine fields and
thus cannot take avoiding action.
e. Antiaircraft Defense Against Night Bombers
(1) Heavy Flak Fire Against Unseen Targets

Sound location is still the main, if not the

only, method employed. The accepted tactics for defeating sound

plotting are still successful. Below 10,000 feet, however, desynchronization of engines does not always bring immunity.

Whenever possible, deep barrages are fired,

This is particularly so when more than one airplane is over the
target; in such a case, fire is concentrated over or around the
perimeter of the target. Fixed barrages have also been encountered,
and one of these has been regularly identified over the Western
suburbs of Berlin. Barrages are often fired at below, and just
above, the cloud base.

There have been many attempts to follow aircraft

with controlled fire from several batteries.

Fighter aircraft have rarely attempted interception. It is strongly suspected that their main use is to signal

height to the Flak.

(2) Heavy Flak Fire Against Illuminated Targets
Over well defended areas, it appears that

concentrations of fire from several batteries centrally controlled
are employed when aircraft are held by searchlights. This is the
most harassing fire encountered from heavy Flak. Fire from independent batteries although consistently encountered, cannot be
considered effective.
(3) Light Flak Fire Against Unseen Targets
Protective barrages are used apparently to prevent

high-flying aircraft from descending to lower altitudes. These

barrages have been particularly noticeable when searchlights were
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held stationary to form a cone above the target. The barrage is
directed in the apex of this cone.

(4) Light Flak Fire Against Illuminated Targets
At 1500 feet and below, blinding searchlights
and heavy concentrations of fire are almost inevitably encountered

over important targets. This form of fire, although often described
as barrage, is delivered from individual guns laid by the Flak
visier, a course and speed sight. The Light Flak Drill Book prescribes

that fire be held until aircraft are either directly over or just

beyond their objectives.

At altitudes from 1500 to 6000 feet, independent
direct fire is employed but with limited success, except as a deterrent
when aircraft are attempting a run-up to the objective. In such

cases, light Flak shells are fired ahead of the aircraft.

f. Gliders
Details concerning gliders of the German Air Force
are reported as follows:
One glider has a wing span of about 55 feet, and
experts consider that it would carry fifteen men and have a range

of 28 miles gliding in still air from 10,000 feet. It is also

believed that the standard JU-52 airplane could toy three such
gliders at a speed of about 120 miles per hour for a distance of
350 milea. There appear to be no technical reasons why larger

gliders should not be built for the transport of field guns and
tanks.

3. FRANCE

Air Strength of Forces on Western Front on May 10. 1940.
The figures given below represent the air means
available to the opposing forces on the Western Front on May 10,
1940. They were obtained from an officer of the French General Staff.
Pursuit
French.

420

English

150

Total

570

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German. . 1500

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Day Bombardment

French.

31

English

32

Obsolescent

English . 128
.

German.

.

Total . 191

3600

The French officer who furnished this information
admitted that the difference in the number of infantry divisions
was not of great importance and had this been the only factor, the

French and English would have withstood the German attack.

He is firmly convinced that the one reason for the
defeat and complete collapse of the French Army is the overwhelming
superiority that the Germans had in bombing planes.

Practically all preparations made by France for the

1939-1940 war were based on 1914-1918 principles of infantry supported
by artillery, whereas Germany had a more modern conception of war

and had prepared, trained, and tested a striking force of motorized
and armored units closely supported by a strong air force.

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Mr. Kamarck thinks this should go to

D.
White or Mr. Coe as it is a study of
economic warfare.

Diwhite years
10141
this permission

CONFIDENTIAL

325

Paraphrase of Code Radiogram
Received at the War Department

at 11:43, April 29, 1941
London, filed 16:00, April 29, 1941.
The following facts, believed to be important and of interest
to, and application for, the United States, are derived from study
and observation of economic warfare made by Major Clabaugh and

submitted for use of General Maxwell, and have been read by

Imbassador Wineat who senours therewith. Further detailed information will be submitted in each pouch.

1. It is believed to be unfortunate that the existence of
the Ministry of Economic Warfare had to await the declaration of

war. British Navy and Army personnel have been killed with British
minitions. The blockade of the source of supplies had to wait
until France and the Netherlands were destroyed and even up to the

present, obstacles which have existed have prevented the establishment of an integrated program with friendly neutrals, the Dominions
and the United States. Breaches in the blockade which are prevent-

able skill remin.
2. The origin of the Ministry of Economic Warfare was the
Foreign office which retains approval of major questions of inter-

national policy only. Planning and administration of all details
to injure the enery's economy are the responsibility of the Minister
of Economic Warfare. The fact of there being a sole agency to which
economic warfare has been delegated has had the effect of securing

the cooperation of neutrals, allies and Dominions, quite aside from

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the Ministry's efficiency in pressing the economic warfare against
Germany. The vete power possessed by the Foreign office over the

Ministry can be challenged by the Minister's insistence on sub-

mitting any particular policy to the Cabinet. With the complete
approval of the Foreign Office and subject to direction of major
policies, it has dealt directly with neutral and allied governments
in securing economic warfare trade agreements. It conducts direct
communications with British representatives abroad relating to such
agreements and in matters of economic intelligence. Important

posts in the Ministry of Economic Warfare are filled by Foreign
Office personnel.

3. It must be emphasised that there is an important fundamental distinction to be made if the procedure in organisation and

administration of the Ministry is to be understood. The British
recognise the difference between the various economic aspects of

war on the one hand, and the field of economic warfare on the other.
The Ministry is responsible primarily for the damage to and
destruction of the enemy's economy. Its operations are offensive

verfare and it does not concern itself except indirectly with
questions of British internal economy such as finance, transporta-

tion or supply, or with the assistance of the United States through
the Land-Lease act. Once this distinction has been made, mutually
beneficial cooperation exists with all other departments and

ministries whose responsibilities in their own fields have been
greatly expanded by the war effort. Economic warfare is held to

2
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be more verfare than economics and is sometimes spoken of in

England as "The Fourth Service." Its operations are directly
coordinated with the Matralty's blookude and with the Air Feree's

bombing of industrial facilities.
4. The Orbinot and the other ministers have recognised the

importance of having - temporary administration in charge of

economic verfare in this specific sense. If certain items of expely
are to be denied the Axis powers, it my be essential to limit its
export at its source, to refuse British shipping facilities and
parts for its use, to purchase all available supplies, or to destroy

the - means of production of the commodity or substitutes for
11. Proquently it is necessary that a comprobensive-plan, coordinated

with that of friendly nextrals and the Dominions, be adopted to
perform all those functions. The failure in any cas my make the

others exbetentially ineffective.
5. As revealed is earlier reports, the Ministry of Neonomic
Warfare concerns itself in the first instance with the blockude,
which is new contingent upon export control, promption, central of

- transactions, control of fuel bushers, supplies and repair
in British-controlled Merbers, the interception of shipments at see,
and the ship's warrant and naviest systems.
6. The plan for all the above methods of coordinated commonie
verfare was devised by the Ministry of Becnemic Verfare but, except

for the novicert system, other ministrice and agencies are responsible

for the execution of those functions.
-3-

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7.

Implicit in the plan to aid Great Britain is the denial
of aid and supplies to her enemies, and it is accordingly recommended

that - add control of ships' privileges, control of dealing with
eneries of Great Britain and presuptive buying to our control of
exports. Since the United States and Canada are Great Britain's
principal base of supply and since Latin America supplies many raw

materials, it has been stated that the center of gravity of economic
warfare moved to the Western Hemisphere when the Export Control

Act was passed on July 2, 1940. It is anticipated that the British
Dominions and their allies and certain neutral nations will cooperate

in plugging preventable leaks in the instrumentation of British
economic warfare 1f the United States will currently assume responsibility for recognising economic warfare and propose a coordinated

plan which will include export control, control of transactions with
enadies of Great Britain, control of ships' bunkers, stores and
repairs, and presemption.
LEE

Distribution
Secretary of War
State Department

Secretary of Treasury

Under Secretary of War

Assistant Chief of Staff, 0-2

War Plans Division

office of Naval Intelligence
Administrator of Export Control

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329

of

Received as the Mar Department

as 11.00, Ageni w. 1041.

Losion, filed April m, 1941.

1. Salls Cable.
1.

Driving Air - the

&.

Saylight, Agen so.

Inter, Moypel (Moliona), the airfield as Do Keet (Malland)
and shipping facilities as Dea Helder were attached w British heavy

bembers as well as chipping off the const of the Motheringle. - wall
ohip was and and - damaged. The Constal Comment bumbed as accorded

convey off the Methorizate coast. One easy destroyer was suck. Fighter

again performed missions over France and Holland.
b.

Hight of April ST-28.
there were as Dombing Commod operations on Britain. The

Goestal Communi attached the two - battlechips in Breat harbor and
exaluated stating operations off the French coast.

8. Samme Air Activity - Britain
s.

Highs of April 10-89.
Scattered alaer raids took place over Suffeit and South

Makes with Figeouth as the main torget. No reports of damage have been
received.

B. Daylight, April 28.
Strong constal patrels were active and TO planes performed

boobing missions over Kent with same damage to civiling facilities.

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330

3. Mic

(2) sight of April a w.

signs fighters come - - please.

(a) April m.

a the course of fighter petwels over The and

Bollows - / please - whos - and four damages.

4. Master Atm malla - a.

Stylight, April se.
From bases in Days British please attached - wase

- transport in the Dengant area.

5. - Activity masic meet Seater.
&. Groups. Eight of April mm.

- only - activity reported was - flighte
and attach - shipping off the south - east coses.

6. - Air I middle Test Theater.
&

Migo. Boylight, April so.

Fighters shot down - - damages - - was
- please leaded with treeses in the vistality of Dentan.
A Grobe. Baylight, Agent m.

- - beater we ahot down.

II. the fallenias ta - of MANA - Intelligence
1. Bevenlers and Greek mount - - yes take
a. Reporte received - to the sight of April no state that
86,000 Brittels weege have bode amounted from Groupe.

e

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5.

British continue to adresse 4. Minu
Anto I - w pregare a defensive position of Toback. the Britten - - a Item main appreciately from
Design to Sir Setafs. - - column we observed to the south - se the seatheast of Balfage. As Aste defensive position to being structed four siles west of Sollam.

Distribution:
Secretary of War
State Department
Becrobary of Treasury
Union Secretary of Mar

Assistant Chief of Staff, as
- Please
office of Neval Intelligence

Air Gaoge

as

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